Cost and Freight – What is it?
Cost and Freight Price Incoterm®
CFR stands for Cost and Freight – it’s a legal term used in international shipping meaning the seller assumes more responsibility for the delivery of goods and needs to pay for transport to an agreed port. The seller will also need to pay for the delivery of goods and export, up until the point the goods are loaded on board the ship. It is important to first note the difference between the shipping terms CFR and CIF.
CFR stands for Cost and Freight. Cost and Freight. The term CFR means that the seller has more responsibility; they will pay for and arrange transportation. This can be contrasted with a seller under an FOB shipping transaction; where the seller is merely responsible for delivery of the goods to the port of origin; they will then be transported. In relation to a CFR trade, the exporter will pay for and arrange transportation to the port of destination that is specified by the receiving party. The exporting company will arrange and fund the transportation that is set out by the purchasing party. In relation to liability and ultimate responsibility, the purchaser will take on the responsibility when the ship has docked in the port of destination. The further costs that will include further transportation and the unloading of the vessel will be bared by the buyer.
Origins of the Term
The reason that we sometimes hear the phrase Incoterms® is because the International Chamber of Commerce (ICC) created the International Commerce Terms – Incoterms.
Moreover, the reason for the differences of terms is that each one governs the requirements of shipping that falls to buyers and sellers in cross-border trade.
CIF, CFR, and FOB are all agreements that are widely referred to as separate incoterms. A major advantage of these incoterms is that it allows international trade to progress in a formalized manner which includes contract formats that are clear and understood no matter what language.
Cost and Freight
CFR explains how the seller has more responsibility for the transportation involved in a transaction. In contrast to a FOB where the seller is responsible for delivery of the goods to the port of origin; they will then be transported.
For a CFR trade, the Exporter will arrange and pay for transportation to the destination port which is specified by the buyer. Furthermore, exporting company will arrange and fund the transportation that is set out by the purchasing party.
In relation to liability and the ultimate responsibility, the purchaser will take this on when the ship arrives in the destination port. Any costs beyond this fall under the liability of the buyer.
CFR In Practise
CFR is strictly associated with goods transported by sea, so our example will have to companies; A based in London, UK. And B, based in Hog Kong, China.
- Company A is purchasing 1000 units of mobile phones from Company B.
- Company B is required to facilitate the carriage of goods by sea to the destination port, and also provide Company A with the necessary documents that will enable the goods to be taken off the ship.
- With this Incoterm, Company B would not, however, have to cover the goods with marine insurance to protect against loss or damage.
- So Company B arranges shipment from Hong Kong to the Port of London along with producing Company A with the documents needed.
- Company A then collects the goods in London and assumes all responsibility for the transportation of the goods from there.
For information on other Incoterms, take a look at our Incoterms 2020 Guide.
Critical Issues around CFR
CFR rules shows two critical issues: while the risks pass from the Seller to the Buyer once the goods are successfully loaded on board the vessel, just like for FOB rule, the Seller shall pay for the freight to carry the goods, not unloaded, to the named port of destination.
In case the goods are stuffed in containers or in case of RORO vessel (roll on / roll off), the CPT rule shall be chosen.
The Seller has to arrange for export customs clearance, if necessary.
Get in touch with our Shipping Experts
Ex Works EXW
Free Carrier FCA
Carriage Paid To CPT
Carriage and Insurance Paid To CPT
Delivery at Terminal DAT
Delivery at Place DAP
Delivery Duty Paid DDP
Free Alongside Ship FAS
Free on Board FOB
Cost and Freight CFR
Delivery Duty Unpaid DDU
Cost Insurance and Freight CIF