What is Cost and Freight (CFR)?
Cost and freight (CFR) is a legal term used in foreign trade contracts. In a contract specifying that a sale includes cost and freight, the seller is required to arrange for the transportation of goods by sea to a port of destination and provide the buyer with the documents necessary to obtain them from the carrier.
With a cost and freight sale, the seller is not responsible for procuring marine insurance against the risk of loss or damage to the cargo during transit. Cost and freight is a term used strictly for cargo transported by sea or inland waterways.
Cost and freight was once abbreviated as C&F, but this changed to CFR in 1990 to facilitate easier communication via telex messages and other technologies used in the ’70s and ’80s. This update was introduced by Incoterms, a set of commercial trade rules established by the International Chamber of Commerce (ICC).
Key Takeaways
- Cost and freight is a legal term requiring sellers to transport goods by sea to a specified port of destination and provide the buyer with documents necessary to retrieve the goods.
- This provision relieves the seller from the responsibility of securing insurance for loss or damage during transit.
- Cost and freight is part of the Incoterms, helping to standardize and simplify international trade contracts.
Understanding Cost and Freight (CFR)
Contracts involving international transportation often include trade terms that outline delivery conditions, payment terms, the risk transfer point, and which party bears the costs for freight and insurance.
When a contract includes cost and freight, the seller is responsible for arranging and paying for the shipment to a specified port. The seller must deliver the goods, clear them for export, and load them onto the transportation vessel. The buyer assumes risk once the goods are aboard the vessel, even before the main transit occurs. This means that the seller does not need to insure the cargo for damage or loss during shipment.
Similar Incoterms to Cost and Freight (CFR)
For goods transported by sea or inland waterways, several other closely related Incoterms are frequently used:
- Free Alongside Ship (FAS): The seller must deliver the cargo next to the vessel, transferring responsibility to the buyer at that point.
- Free On Board (FOB): Requires the seller to also load the goods onto the vessel, with risk transferring to the buyer once onboard.
- Cost Insurance and Freight (CIF): Similar to CFR, but includes the additional obligation for the seller to insure the goods until they reach the destination port.
What Does Cost and Freight (CFR) Entail?
CFR entails that the seller arranges and finances the shipment of goods to a specific port. The seller clears the goods for export and loads them onto the transport vessel. After loading, the risk transfers to the buyer, who is responsible for obtaining insurance for the duration of the transit.
What is an Incoterm?
“Incoterm” stands for International Commercial Term, a set of standardized trade terms published by the International Chamber of Commerce (ICC). Incoterms clarify the obligations of buyers and sellers in international trade agreements.
What’s the Difference Between CIF and CFR?
CFR and CIF both address the shipment of goods by sea, but CIF includes marine insurance, which is the seller’s responsibility until the destination port. CFR places no insurance obligation on the seller once the goods are loaded onto the vessel.
The Bottom Line
Cost and freight (CFR) is an Incoterm essential for cargo transported by sea or inland waterways, establishing clear responsibilities for both the buyer and the seller. The seller handles export and delivery tasks up to the destination port, while the buyer bears the risk and insurance responsibilities once goods are loaded onto the vessel.
Related Terms: Free Alongside Ship (FAS), Free on Board (FOB), Cost Insurance and Freight (CIF).
References
- Incoterms Explained. “Cost and Freight (CFR)”.
- International Chamber of Commerce. “Incoterms® Rules History”.
- Trade Finance Global. “Cost and Freight CFR”.
- International Chamber of Commerce. “Incoterms® Rules”.
- UPS. “Cost and Freight (CFR)”.
- International Chamber of Commerce. “The Incoterms® Rules 2010”.
- IncoDocs. “Incoterms® Explained—The Complete Guide”.
- Trade Finance Global. [“Incoterms® 2020—7 Key Changes You Need to Know [“Update"]”](https://www.tradefinanceglobal.com/posts/incoterms-2020-7-key-changes-you-need-to-know/).
- Meadows Wye & Co. “INCOTERMS—Responsibilities of Seller and/or Buyer Explained.”
