Cost and Freight (CFR) – Incoterms® 2020 in detail

The following article describes everything you need to know about the Incoterm “Cost and Freight” (CFR). In case of any questions or unclarities, do not hesitate to contact us.

Group C: Main Carriage Paid – Cost and Freight (CFR)

Cost and Freight (CFR) is a trade term that is part of the Incoterms 2020, and is applicable only to sea and inland waterway transport. The term states that the seller is obligated to transport goods by sea at their expense to a port of destination and provide the buyer with the documents that are needed to pick up the goods at their destination. Even though the seller is obligated to carry the costs of transporting the goods, they are not required to arrange insurance for the cargo (unless negotiated with the buyer), which differentiates the Incoterm CFR from the Incoterm Cost, Insurance and Freight (CIF). The buyer on the other hand, is responsible for arranging the unloading and transportation of the goods in the country of destination. Additionally, the buyer must cover the customs clearance fees, import duties and taxes in the country of destination. Important to mention is, that the risk of damage and loss transfers to the buyer as soon as the goods are loaded onto the ship.

Why is CFR being used?

If an Incoterm, such as Cost and Freight (CFR) is being used within a contract of sale, it creates a legal obligation and thus, must be respected. Generally, Incoterms such as CFR are used to prevent confusion by clarifying the obligations of the buyer and the seller. These include transport and export obligations, as well as the physical point where the risk transfers from the seller to the buyer.

Examples of Cost and Freight (CFR) in action

Let’s say a Dutch company sells 50,000 bike tires under the CFR shipping term to a Canadian company. The seller must pack and deliver the goods to be loaded onto the ship and clears them for export. Meaning, the Dutch company arranges transport with a freight forwarder and pays for the shipping until the port of destination in Canada. As soon as the goods have been loaded onto the ship, the risk transfers to the Canadian company. The Canadian company needs to pay the import fees and customs as well as covering the unloading, destination handling charges, delivery and unloading of the goods at the port of destination.

What are the Incoterms Obligations for CFR in Shipping?

There are different obligations for the seller and the buyer when using the CFR shipping term:

Seller’s Obligations:

Export packaging
Loading Charges
Delivery to port/place
Export duty, taxes and customs clearance
Terminal handling charges at origin
Loading on carriage and freight charges

Arranges and bears the cost for transporting the cargo to the buyer's port.

Buyer’s Obligations:

Payment for goods as specified in sales contract
Handling charges at destination
Delivery to destination and unloading at destination
Import duty, taxes and customs clearance

Please note that in terms of Insurance costs, this can be arranged and paid for by either party as stated In the contract.

CFR vs. CIP

CFR (Cost and Freight) is an Incoterm that is only being used for ocean and inland waterway freight. CIP (Carriage and Insurance Paid To) on the other hand, can be used for all modes of transport, including air, road or rail. Additionally, the seller must arrange insurance for the goods when using CIP whereas for CFR, the seller is not obliged to arrange insurance.

CFR vs. CIF

The difference between CIF (Cost, Insurance and Freight) and CFR (Cost and Freight) is that for CIF the seller is obliged to obtain insurance for the goods. For CFR the seller is not obliged to arrange insurance.

CFR vs. FOB

CFR (Cost and Freight) and FOB (Free on Board) differ in how they allocate costs and risks between the buyer and seller. When using the FOB terms, the seller is responsible for the goods until they are loaded onto the ship. The buyer takes over the responsibility for the costs and the risks as soon as the goods pass the ships rail at the port of origin. Whereas when using the CFR terms, the seller is responsible for all costs and risks until the goods arrive at the destination port, including transportation and freight costs. The buyer on the other hand is responsible for the unloading costs and any further transportation.

How ALS can support you with the complexity of international commerce

ALS is an innovative, neutral, and globally active customs broker. We operate as a unified entity, where every member of our team, from your dedicated contacts to our board of directors, is committed to meeting your specified needs.

We are here to guide you through the process of international trade. Whether it’s speaking to one of our sales team, or requiring further guidance with our consultants, we offer everything to help facilitate your complete end-to-end customs solution. By law, we are not able to provide you with advice on which Incoterm you should use. However, we can provide you with information which you can use to make your decision.