In the complex world of international shipping, understanding Incoterms can make or break your business deals. Today, we’re diving deep into CFR (Cost and Freight) – an Incoterm that many seasoned importers and exporters rely on for sea shipments. If you’ve ever scratched your head wondering about the implications of CFR on your business, you’re in the right place!

What Is CFR in Shipping Terms?

CFR stands for Cost and Freight. It’s an International Commercial Term (Incoterm) developed by the International Chamber of Commerce (ICC) to simplify international trade. Think of it as a universal language that helps you and your business partners clearly understand who pays for what and who’s responsible when things go wrong during shipping.
For those of us navigating the choppy waters of international trade, CFR provides much-needed clarity about costs and responsibilities. Let’s break it down in simple terms.

Discover More: What Does Customs Clearance Mean?

How CFR Terms in Export Works?

Under CFR, the seller takes care of the costs and freight to get your goods to the destination port. However, once those goods are loaded onto the vessel, the risk transfers to you, the buyer.

Here’s what happens in a typical CFR transaction:

1. The seller prepares the goods and handles export clearance
2. The seller loads the goods onto the vessel
3. Risk transfers to the buyer once goods are loaded
4. The seller pays for transport to the destination port
5. The buyer handles all costs after arrival including unloading and import duties

The key thing to remember with CFR is this separation between cost and risk. The seller pays for freight to the destination port, but you (the buyer) shoulder the risk during that journey.

Example Scenario:

Let’s say a company in India (Seller) sells a shipment of large industrial pipes (bulk, non-containerized cargo suitable for sea transport) to a company in the United States (Buyer). They agree to use CFR Incoterms to the port of New York.

Seller’s Responsibilities:

The Indian seller properly packages the pipes for export, arranges and pays for their transport from their factory to the port of Mumbai, clears the goods for export, and loads the pipes onto the vessel in Mumbai. The seller pays the main freight cost to transport the pipes from Mumbai to the port of New York. The seller provides the necessary documents to the buyer to receive the goods in New York.

Transfer of Risk:

As soon as the pipes are loaded onto the ship in Mumbai, the risk of loss or damage transfers from the Indian seller to the U.S. buyer. If the ship sinks or the pipes are damaged during the sea voyage, the risk is borne by the buyer.

Buyer’s Responsibilities:

The U.S. buyer is responsible for the payment for the pipes. Since insurance is not included under CFR, the buyer would ideally arrange their own marine insurance policy starting from when the pipes were loaded in Mumbai. Upon arrival in New York, the buyer is responsible for paying for unloading the pipes at the port, handling all import formalities, customs clearance, taxes, and import duties in the U.S. The buyer then arranges and pays for the transport of the pipes from the port of New York to their final destination.

This example illustrates how CFR clearly defines the point where costs and risks shift, with the seller covering costs and managing transport up to the destination port, while the buyer assumes risk earlier and handles all aspects from the destination port onwards, including import formalities and insurance (if desired).

Seller vs. Buyer Responsibilities Under CFR

Let’s get crystal clear about who does what under CFR terms:

Seller’s Responsibilities:

• Packaging goods properly for international shipping
• Paying loading charges at the initial pickup
• Managing all export paperwork and clearance
• Covering origin terminal charges
• Loading goods onto the vessel
• Paying for freight to the destination port
• Providing necessary documentation for pickup
• Providing proof of delivery
• Covering pre-shipment inspection for export

Buyer’s Responsibilities:

• Taking on risk once goods are loaded on the vessel
• Paying for unloading at destination port
• Arranging transport from port to final destination
• Handling all import formalities (customs, taxes, duties)
• Managing discharge and onward carriage
• Paying for pre-shipment inspection for import
• Arranging insurance during transit (this is critical!)

That last point deserves special attention. Unlike its cousin CIF (Cost, Insurance, and Freight), CFR does not require the seller to provide insurance. This responsibility falls squarely on your shoulders as the buyer.

When Should Your Business Use CFR?

Not every shipment calls for CFR terms. Here’s when you should consider it:

• For sea or inland waterway transport only – CFR doesn’t work for air, road, or rail
• For bulk or non-containerized cargo – Think vehicles, equipment, or raw materials
• When you (as buyer) want to arrange your own insurance – This gives you control over coverage
• When you prefer the seller to handle transport to destination port – Simplifies your logistics
• When you want control over customs clearance at destination – Helpful in countries where you have experience

If you’re new to importing, CFR can be particularly helpful because the seller handles a significant portion of the shipping process, allowing you to focus on your core business.

Key Differences Between CFR and CIF

Many importers and exporters get confused between CFR and CIF. The distinction is simple but important:

Feature	CFR (Cost and Freight)	CIF (Cost, Insurance, and Freight)
Insurance	Buyer’s responsibility	Seller’s responsibility
Cost coverage	Freight to destination port	Freight and insurance to destination port
Risk transfer	When loaded on vessel	When loaded on vessel
Best for	Buyers who want insurance control	Buyers who prefer seller-arranged insurance
Typical cost	Lower upfront cost	Higher upfront cost (includes insurance)

As you can see, the primary difference comes down to who arranges and pays for the marine insurance during transit.

Advantages and Disadvantages of CFR for Your Business

Let’s be honest – no Incoterm is perfect for every situation. Here’s what you need to consider before choosing CFR:

Advantages

• Leverages seller’s expertise in export processes and shipping relationships
• Provides cost clarity for budgeting shipping expenses
• Reduces your workload by having seller arrange transport to destination
• Gives you flexibility to choose your own insurance provider and coverage
• Reduces surprise fees during the shipping process

Disadvantages

• Risk transfers early – You bear risk during the main sea journey
• Insurance responsibility falls on you (and forgetting this can be costly!)
• Import formalities can be complex and time-consuming
• Significant costs after arrival including unloading, duties, and inland transport

Important Tips for Using CFR Successfully

If you decide CFR is right for your shipment, keep these tips in mind:

1. Always arrange marine insurance! This is the number one mistake importers make with CFR.
2. Clearly specify the exact point within the destination port where the transfer occurs.
3. Factor in all post-arrival costs when calculating the total landed cost of your goods.
4. Build relationships with customs brokers at your destination port to handle import formalities.
5. Document everything – Proper documentation is your best protection if disputes arise.

CFR offers a balanced approach to international shipping that works well for many businesses. It gives you control where it matters most – at the destination port and with insurance coverage – while allowing the seller to handle what they do best: getting the goods to the port.
Remember that Incoterms are negotiable. If CFR doesn’t quite fit your needs, you can always discuss modifications with your supplier or consider other terms like CIF, FOB, or CPT.

What has been your experience with CFR? Have you found it beneficial for your business? Share your thoughts in the comments below or reach out to our team for personalized advice on your shipping strategy!

FAQ

1. What does CFR stand for in shipping terms?
   CFR stands for “Cost and Freight.” It means the seller covers the cost of goods and freight to the destination port, but risk transfers to the buyer once goods are loaded on the vessel at the origin port.
2. When should I use CFR instead of CIF?
   Use CFR when the buyer can obtain better or more affordable insurance coverage than the seller. If you prefer the seller to handle insurance, choose CIF instead.
3. Does CFR include insurance?
   No, insurance is not included in CFR. The buyer is responsible for arranging and paying for any insurance coverage during transport.
4. What’s the difference between CFR and CIF?
   The main difference is insurance. Both terms require the seller to pay for transport to the destination port, but CIF also requires the seller to provide insurance coverage while CFR does not.
5. When does risk transfer from seller to buyer under CFR?
   Risk transfers from seller to buyer the moment the goods are loaded onto the vessel at the port of origin, even though the seller continues to pay for transport to the destination.
6. Can CFR be used for all types of transport?
   No, CFR can only be used for sea and inland waterway transport. For other transport modes like air, road, or rail, use CPT (Carriage Paid To) instead.
7. Who pays for loading and unloading under CFR?
   The seller pays for loading costs at the origin port. The buyer is responsible for unloading costs at the destination port.
8. Who handles customs clearance under CFR?
   The seller is responsible for export clearance at the origin. The buyer handles all import clearance procedures and pays any import duties and taxes.
9. Is CFR suitable for container shipments?
   CFR is not ideal for containerized cargo. It’s best used for bulk cargo or situations where the seller has direct access to the vessel for loading, such as with non-containerized goods.
10. Who arranges transportation from the destination port to the final delivery location?
    The buyer arranges and pays for all transportation from the destination port to the final delivery location under CFR.
11. What common mistakes should I avoid when using CFR?
    Common mistakes include: not specifying the exact destination port, misunderstanding when risk transfers, not arranging proper insurance as the buyer, and using CFR for containerized goods.
12. What documentation is required for CFR shipments?
    Key documents include a commercial invoice, bill of lading, packing list, export licenses (if required), and insurance certificate (if the buyer arranges insurance).
13. Is CFR the same as CNF?
    Yes, CFR and CNF (Cost and No Insurance Freight) refer to the same shipping arrangement. CFR is the official Incoterm while CNF is an older or informal variation.
14. Who has liability for damaged goods during ocean transit under CFR?
    The buyer has liability for any damage that occurs during ocean transit, as risk transfers to the buyer once goods are loaded on the vessel at the origin port.
15. What costs should the seller factor into CFR pricing?
    The seller should include: cost of goods, inland transport to origin port, export clearance costs, loading charges, and ocean freight to the destination port.
16. What version of Incoterms is currently in use?
    Incoterms 2020 is the current version, though parties can agree to use earlier versions like Incoterms 2010 if specifically stated in their contract.
17. What are the best practices for buyers using CFR terms?
    Purchase appropriate insurance to protect your goods during transit, work with a reliable customs broker, and maintain regular communication with the seller to prevent delays.
18. What are the advantages of using CFR for the buyer?
    The buyer gains better control over insurance options, import clearance, and final delivery logistics, which can be advantageous if they have good connections at the destination port.
19. When is CFR a bad choice?
    CFR is a poor choice for containerized goods, when the buyer has limited experience with importing, or when the buyer cannot obtain good insurance rates for the shipment.
20. Do Incoterms like CFR determine who owns the goods?
    No, Incoterms only define responsibilities for costs, risks, and tasks during shipping. They do not determine ownership or transfer of title, which should be specified separately in the sales contract.