In the import/export business, there is no such thing as the best trade term; it depends entirely on the bargaining power of the business entity vis-à-vis the buyer/seller and the need to control costs. Let's learn more about the introduction and application of Incoterm CFR in this article.

Definition

Cost and Freight (CFR) is an international trade term used in shipping. It specifies that the seller is responsible for covering the cost of transporting goods to the port of destination and paying the freight charges. However, the risk transfers to the buyer once the goods are loaded onto the vessel. The buyer is then responsible for insurance and any additional costs that arise after the goods are on board. This term is typically used for bulk shipments by sea or inland waterways.

※the CFR price normally should include the carriage cost.

If the carriage cost isn’t included, then it would be Incoterms FOB.

Currently, CFR and CPT are often confused, as both require the seller to clear the goods for export and charter a vessel to transport the goods to the destination. However, compared with CPT, CFR conditions will have the following differences:

CFR conditions apply only to ocean and inland waterway modes of transportation. CPT applies to all modes of transportation.

According to CFR, the seller completes his responsibility when the goods are delivered and loaded on board the ship. At the same time, CPT provides that the seller ceases to be liable when the goods have been delivered to the carrier at the agreed place and delivery on board is not required.

CFR Incoterm Example

A company in China sells electronic components to a buyer in the U.S. Under CFR terms, the Chinese seller arranges and pays for the transport of the components from their factory to the port in Los Angeles and covers the freight costs.

Once the components are loaded onto the ship in Shanghai, the risk transfers to the U.S. buyer. If the components are damaged during the sea voyage, it is the buyer's responsibility. The buyer also needs to arrange for insurance from the point of loading and handle any customs duties and transport costs from the port of arrival to the final destination.

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