What Is Cost and Freight – CFR?

Cost and freight is a legal term in international trade. In a contract specifying that a sale is 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 them from the carrier. Under CFR, the seller does not have to procure marine insurance against the risk of loss or damage to the cargo during transit.

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Cost and Freight (CFR)

How Do Cost and Freight – CFR

Work?

Contracts involving international transportation often contain abbreviated trade terms that describe matters such as the time and place of delivery, payment, the conditions under which the risk of loss shifts from the seller to the buyer, and specifying the party responsible for the costs of freight and insurance. CFR is a term used strictly for cargo transported by sea or inland waterways.

Key Takeaways

  • CFR is a legal term in international trade that specifies 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 items from the carrier.
  • CFR is a commonly used International Commercial Term.
  • For the seller, a CFR means they are not responsible for buying insurance for the loss or damage of product during transportation.

Difference Between Cost and Freight –

CFR and Free on Board – FOB

The difference between cost and freight (CFR) and free on board (FOB) lies in who has responsibility for various shipping or freight costs—the buyer or the seller. The terms refer to the point at which transfer of responsibility for goods shipped occurs, from the seller/shipper to the buyer/receiver.

Commercial Terms Related to CFR

For 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 cargo to the port next to the vessel, and responsibility for the goods 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 they reach the destination port.

Real World CFR and the International Chamber of Commerce

The most commonly used and recognized trade terms are the International Commercial Terms, aka Incoterms, which the International Chamber of Commerce publishes and regularly updates. There are 11 Incoterms that buyers and sellers may use as standard sets of terms and conditions for a given trade. Incoterms assist traders by specifying obligations, such as transport and export clearance obligations and the physical point where risk transfers from the seller to the buyer.

If a buyer and a seller agree to include CFR in their transaction, the seller must arrange and pay for transporting the cargo to a specified port. The seller must deliver the goods, clear them for export, and load them onto the transport ship. The risk of loss or damage transfers to the buyer once the seller loads the items onto the vessel but before the main transportation occurs. This provision means the seller is not responsible for securing insurance for the cargo for loss or damage during transportation.

(See also: Clean Bill of Lading)