Cost and Freight – CFR

SEC Release IA-1092

What is the cost and freight – CFR?

Cost and freight is a legal term in international trade. In a contract specifying that a sale is CFR, the seller is required to organize the transport of goods by sea to a port of destination and to provide the buyer with the documents necessary to obtain them from the carrier. Under the CFR, the seller is not required to take out marine insurance against the risk of loss or damage to the cargo during transit.

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Cost and Freight (CFR)

How the cost and freight – CFR

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Contracts involving international transport often contain abbreviated commercial terms which describe issues such as time and place of delivery, payment, conditions under which the risk of loss passes from seller to buyer, and specifying the party responsible for transport and insurance costs. CFR is a term used strictly for freight transported by sea or inland waterway.

Key points to remember

  • CFR is a legal term in international trade which specifies that the seller is obliged to organize the transport of goods by sea to a port of destination and to provide the buyer with the documents necessary to obtain the items from the carrier.
  • CFR is a commonly used international trade term.
  • For the seller, a CFR means that he is not responsible for taking out insurance for the loss or damage of the product during transport.

Difference between cost and freight –

CFR and free on board – FOB

The difference between cost and freight (CFR) and free on board (FOB) is the responsibility for various shipping or freight costs – the buyer or the seller. The terms refer to the time when the transfer of responsibility for the goods dispatched takes place from the seller / sender to the buyer / recipient.

Commercial terms related to CFR

For goods transported internationally by sea or inland waterway, there are three other Incoterms closely linked to the CFR. Free shipping alongside the ship (FAS) means that the seller only has to deliver the cargo to the port next to the ship, and the responsibility for the goods rests with the buyer at that time. Free on board (FOB) means that the seller must go further and load the goods on the ship. Cost and Freight Insurance (CIF) is similar to CFR, but the seller has the additional obligation to insure the goods until they reach the port of destination.

Real World CFR and the International Chamber of Commerce

The most commonly used and recognized trade terms are the international trade terms, called Incoterms, which the International Chamber of Commerce publishes and updates regularly. There are 11 Incoterms that buyers and sellers can use as standard sets of terms and conditions for a given trade. Incoterms help traders by specifying obligations, such as transport and export customs clearance obligations and the physical point where risk is transferred from seller to buyer.

If a buyer and seller agree to include the CFR in their transaction, the seller must arrange and pay for the transportation of the cargo to a specified port. The seller must deliver the goods, clear them for export and load them onto the transport vessel. The risk of loss or damage is transferred to the buyer once the seller has loaded the items on the ship but before the main transport. This provision means that the seller is not responsible for taking out insurance for the cargo in the event of loss or damage during transport.

(See also: Own bill of lading)

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