What Is Cost and Freight (CFR)?
Let me explain Cost and Freight (CFR) directly: it's a term in international trade contracts where the seller must deliver goods to a foreign port. As the seller, you're responsible for shipping the goods and providing the documents the buyer needs to take possession. Remember, this applies only to cargo moved by sea or inland waterways. You're not on the hook for marine insurance against loss or damage during transit. Back in the day, it was abbreviated as C&F, but since 1990, it's CFR under the Incoterms rules from the International Chamber of Commerce (ICC).
Key Takeaways
You should know that CFR is a globally recognized Incoterm from the ICC's standards for foreign trade. It makes the seller handle shipping but not insuring the goods against losses. Compare it to Cost, Insurance, and Freight (CIF), where the seller also covers marine insurance on top of shipping.
Understanding Cost and Freight (CFR)
In international transportation contracts, you'll often see abbreviated terms that spell out delivery details, payment, risk transfer, and who pays for freight and insurance. If you and the buyer agree on CFR, you as the seller arrange and pay for transport to the specified port. You deliver the goods, clear them for export, and load them onto the ship. The risk shifts to the buyer once loaded, before the main voyage starts. That means you don't have to insure the cargo for the trip.
CFR is one of the Incoterms, a set of terms the ICC publishes and updates to standardize foreign trade. These help avoid confusion by clearly defining buyer and seller obligations, like transport, export clearance, and the point where risk transfers.
Important Note
When CFR or any Incoterm shows up in a sales contract, it creates a legal obligation that you must follow.
Similar Incoterms to Cost and Freight (CFR)
For sea or inland waterway transport, there are a few Incoterms similar to CFR that you'll encounter in trade contracts. Free Alongside Ship (FAS) means you as the seller just deliver the cargo next to the vessel at the port, and the buyer takes over from there. Free on Board (FOB) goes further, requiring you to load the goods onto the ship. Cost, Insurance, and Freight (CIF) is like CFR but adds that you must insure the goods until they reach the destination port. With CFR, insurance isn't your responsibility.
What Does Cost and Freight (CFR) Entail?
CFR is an expense tied to cargo shipped by sea or inland waterways. If it's in the deal, you as the seller arrange and pay for transport to the specified port. You're also responsible for delivering, export clearance, and loading onto the ship. But once loaded, the buyer bears the risk of loss or damage, so you don't insure during transport.
What Is an Incoterm?
Incoterm stands for International Commercial Term, a collection of terms and definitions from the ICC. They're standardized to clarify buyer and seller duties, like transport and export obligations, preventing mix-ups.
What’s the Difference Between CIF and CFR?
CFR and CIF are alike in handling sea transport and splitting transit responsibilities. The key difference is that CIF requires the seller to cover marine insurance, while with CFR, you as the seller aren't responsible for insuring until the destination port.
The Bottom Line
CFR, an Incoterm for sea or inland waterway cargo, places significant responsibility on both parties. As the seller, you handle planning and costs for exporting to the buyer's specified port. But once loaded on the vessel, the buyer deals with marine insurance, onward transport by truck, import fees, and more. These terms are common in international trade, so understand them well.
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