What does 'Cost and Freight - CFR' mean
Cost and freight (CFR) is a legal term used in international trade. In a contract specifying that a sale is made CFR, the seller is required to arrange for the carriage of goods by sea to a port of destination and provide the buyer with the documents necessary to obtain the goods from the carrier. Under CFR, the seller does not have to procure marine insurance against the risk of loss or damage to the goods during transit.
BREAKING DOWN 'Cost and Freight - CFR'Contracts involving international transportation often contain abbreviated trade terms that describe matters such as the time and place of delivery, payment, when the risk of loss shifts from the seller to the buyer, and who pays the costs of freight and insurance. CFR is one such term used strictly for goods transported by sea or inland waterways.
International Chamber of Commerce Incoterms
The most commonly used and recognized trade terms are the International Commercial Terms (Incoterms), which are published by the International Chamber of Commerce (ICC). There are 11 Incoterms that may be used as standard sets of terms and conditions for a given trade. Incoterms assist traders by specifying the obligations of each party in regards to transport, export clearance, the physical point where risk transfers from the seller to the buyer and many more.
If a buyer and a seller agree to use CFR as the rule for their transaction, then it is the seller's obligation to arrange and pay for transport to the named port. As such, the seller must deliver the goods, cleared for export, on board the transport vessel. The risk of loss or damage is transferred to the buyer once the goods are loaded on board but before the main transport takes place. This means the seller is not responsible for insuring the goods for the main transport.
Examples of Related Commercial Terms
In regards to goods transported internationally by sea or inland waterway, there are three other Incoterms closely related to CFR. Free alongside ship (FAS) means the seller only has to deliver the goods to the port, next to the vessel, and that responsibility shifts to the buyer at that point. Free on board (FOB) means the seller must go one step further and load the goods onto the ship. Cost insurance and freight (CIF) is similar to CFR, but the seller has the additional obligation of insuring the goods until the destination port.