Incoterms CFR - Cost and Freight - explained

If you’re involved in international trade, the Incoterms® rules are crucial to know about. This set of 11 rules is maintained by the International Chamber of Commerce, and specifies whether the buyer or the seller is responsible for shouldering the risks and costs of a delivery, at each different stage of the process.

One of the 11 Incoterms® rules is CFR, and in this guide you’ll find out what it means.

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CFR Incoterms® meaning

CFR stands for “Cost and Freight,” and it’s one of the four Incoterms® rules that can only be used for waterbound transportation, whether it’s by sea or by a waterway that’s inland.

As well as specifying that you’re using the CFR rule, you’ll also need to specify the port of destination – the place in the buyer’s country where the goods will be delivered.

Under the CFR rule, the seller is responsible for:

• Arranging transportation of the goods all the way to the port of destination – including the main carriage
• Export formalities
• Loading the goods onto the vessel.

The buyer, meanwhile, is responsible for:

• Import formalities
• Any onward transportation after the goods have arrived at the port of destination
• Risk from the main carriage onwards.

It’s important to note that under CFR cost and risk transfer between the parties at different points. The seller pays for the whole trip until the port of destination. But while the goods are traveling from the seller’s country to the buyer’s, the risk is shouldered by the buyer.

CFR is designed to be used with non-containerized freight only. If you’re dealing with containerized freight, the CPT is a better alternative. With CPT, the risk transfers from seller to buyer at a slightly earlier point – before the goods are loaded onto the vessel. That’s generally a more practical way of dealing with things if the freight is in containers.

Neither party is obligated to provide insurance with the CFR rule – that’s a subject that should be dealt with separately in the contract. Alternatively, consider using the CIF rule (Cost, Insurance and Freight), which is similar, but additionally stipulates that the seller sort out insurance.¹ ² ³

CNF Incoterms®

If you see a reference to CNF – or indeed C&F or C+F – don’t be fooled. It’s an earlier term that meant the same as CFR. The correct contemporary term to use is CFR.⁴ ⁵

CFR Incoterms® 2010 and 2020

The Incoterms® rules are updated about once every decade by the ICC. The most recent update was in 2020, and before that in 2010.

You don’t have to use the latest version of the Incoterms® rules. It just has to be clear in the contract which version you’re using – so do remember to specify the year (likely 2020 or 2010).

You might see references to Incoterms® 2017, Incoterms® 2018 or similar – but you shouldn’t. The only recent sets of rules that exist are Incoterms® 2010 and Incoterms® 2020.

The CFR rule wasn’t substantially changed in 2020.⁶ ⁷

Difference between CFR and FOB Incoterms® rules

The FOB Incoterms® rule is somewhat similar to CFR, so it’s worth a word of explanation.

FOB (“Free On Board”) is simpler to understand because risk and cost transfer at the same time. The seller is responsible for the process up until the goods are loaded onto the vessel, and then the buyer is responsible for everything.

Thus, the seller still has responsibility for loading the vessel, but the vessel itself – and of course the main carriage – is arranged by the buyer.

Like CFR, FOB is meant for use with non-containerized freight, and is only for waterbound transportation.⁸ ⁹

Conclusion: CFR Incoterms® rule

CFR isn’t the easiest of the Incoterms® rules to understand. But just like with the others, whether or not it’s the right one to use will depend on the precise relationship between buyer and seller, as well as the nature of the goods themselves.

If the seller is well placed to arrange the main carriage of the goods, CFR may prove a good option for bulk or break-bulk cargo. However, do make sure that both parties fully understand when the transfer of risk occurs. And don’t forget to come to your own arrangement about insurance, as CFR doesn’t specify what you should do for that.¹ ² ³

The full list of Incoterms® rules is certainly still worth knowing about, so you can rest assured you’ve picked the right one.

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Sources:

1.Freightos - CFR Incoterms: Cost and Freight Shipping

2.Incoterms Explained - Cost & Freight

3.AIT Worldwide - Incoterms CFR - Cost and Freight

4.Oceanhub Shipping - Incoterms

5.TP Machines - Parity: International commercial terms

6.International Chamber of Commerce (ICC) - Incoterms® 2020

7.ICC - What are the key changes in Incoterms® 2020?

8.Freightos - What are the key changes in Incoterms® 2020?

9.AIT Worldwide - Incoterms FOB - Free on Board

All sources checked 25 June 2020