CFR Incoterms is a trade term that governs the allocation of responsibilities between the seller and the buyer in maritime or inland waterway transport. Under its terms, the seller arranges and pays for the delivery of the goods to the port of destination. However, the risks transfer to the buyer at the moment the goods are loaded onto the vessel at the port of departure. In other words, the point at which risk is transferred and the point at which delivery obligations are fulfilled do not coincide.
Such a structure of terms requires a clear understanding of the parties’ responsibilities in order to avoid misunderstandings, disputes, and potential financial losses. In this guide, we will take a detailed look at how CFR shipping works in practice, who is responsible for what, what risks are borne by the seller and the buyer, and what important aspects should be considered when concluding an international trade contract.
- 1. CFR Incoterm Meaning
- 2. Transfer of Risk and Responsibility for the Goods under CFR in Shipping Terms
- 3. Obligations of the Buyer and Seller under CFR Incoterms
- 4. CFR, CIF, and FOB: Differences Between Delivery Terms
- 5. Advantages and Disadvantages of the CFR Incoterms Buyer and Seller Responsibilities
- 6. When Should You Use CFR (Cost and Freight) Terms?
- 7. Frequently Asked Questions
According to the Incoterms 2020 edition, the term CFR applies exclusively to maritime and inland waterway transport. CFR stands for “Cost and Freight.” This means that the seller bears the costs of export clearance, delivery of the goods on board the vessel, and payment of the freight to the port of destination.
At the same time, the risk of damage to or loss of the goods transfers to the buyer at the moment the goods are loaded onto the vessel at the port of departure. Formally, the seller fulfills their delivery obligations once the cargo is loaded on board, but remains financially responsible for the transportation to the final destination.
It is important to understand that CFR covers only transportation. The rules do not include cargo insurance. If the buyer requires risk coverage, they should arrange insurance separately or use the CIF (Cost, Insurance and Freight) term instead.
One of the key features of CFR (Cost and Freight) is that the moment when risk transfers does not coincide with the moment when financial delivery obligations are completed. This often leads to misunderstandings, especially for those who are new to working with Incoterms rules.
Under CFR, all risks of loss or damage to the goods transfer from the seller to the buyer the moment the goods cross the ship’s rail at the port of shipment. This moment is the critical point after which the seller is released from responsibility for the physical condition of the cargo. At the same time, the seller remains obligated to pay the freight to the port of destination.
From that point on, the buyer assumes all potential consequences, including losses due to damage, loss, or delay, even though the transportation is arranged and paid for by the seller.
Successful execution of a contract under CFR (Cost and Freight) terms depends directly on a clear understanding and timely fulfillment of each party’s obligations. Incoterms 2020 provides detailed regulations on the allocation of responsibilities, setting specific requirements for the seller and the buyer at each stage of the transaction.
3.1 Seller’s obligations:
- Ensure proper packaging of the goods for maritime transport.
- Mark the cargo in accordance with the contract requirements and international standards.
- Deliver the goods by placing them on board the vessel at the port of shipment on the agreed date or within the agreed period.
- Complete export customs formalities and pay all export duties, taxes, and fees.
- Provide all necessary transport documents in the agreed number of copies and within the stipulated deadlines.
- Pay the freight charges for transporting the goods to the port of destination.
- Notify the buyer of the loading of the goods onto the vessel so that they can prepare to receive the shipment.
3.2 Buyer’s obligations:
- Pay the full price of the goods as specified in the contract.
- Assume the risks for the goods from the moment they are loaded onto the vessel at the port of shipment.
- Complete import customs formalities in the destination country and pay all import duties, taxes, and fees.
- Arrange for the unloading of the goods from the vessel at the port of destination.
- Arrange for onward transportation to the final destination.
In international trade, besides CFR by sea, other terms such as CIF and FOB (Free On Board) are also commonly used for maritime delivery. All three terms involve the transfer of risk from the seller to the buyer at the moment the goods are loaded onto the vessel. However, there are fundamental differences between them that are important to consider in foreign trade transactions.
4.1 CFR vs. CIF
Both terms assume that the seller arranges and pays for the sea transportation to the port of destination, while the risks transfer to the buyer at the moment the goods are loaded onto the vessel at the port of shipment. It can be said that CIF fully mirrors the rules of CFR. The only difference between them is the seller’s obligation to insure the cargo.
- Under CFR, the seller is not obliged to insure the goods; the responsibility for arranging and paying for insurance lies entirely with the buyer.
- Under CIF, the seller is required to provide cargo insurance under minimum coverage terms.
4.2 CFR vs. FOB
The transfer of risk in both cases occurs at the same point — when the goods cross the ship’s rail at the port of shipment. However, the costs of sea transportation to the port of destination are allocated differently:
- Under CFR terms, the seller is obligated to arrange and pay for the sea freight to the port of arrival. The buyer assumes the risks from the moment the goods are loaded onto the vessel but does not participate in the freight arrangement process.
- Under FOB terms, the seller is only responsible for delivering the goods and loading them onto the vessel chosen and chartered by the buyer. All transportation costs after the point of shipment, including freight and insurance (if required), are borne by the buyer.
4.3 Key differences between CFR, CIF, and FOB terms
At first glance, the CFR, CIF, and FOB terms may seem similar, but each has important distinctions. The table below will help you quickly understand their differences.
| CFR | FOB | CIF | |
|---|---|---|---|
| Type of transport | Only sea and inland water transport | Only sea and inland water transport | Only sea and inland water transport |
| Transfer of risk | At the moment goods are loaded onto the ship at the port of shipment | At the moment goods are loaded onto the ship at the port of shipment | At the moment goods are loaded onto the ship at the port of shipment |
| Freight payment | Seller | Buyer | Seller |
| Insurance obligation | None (insured by buyer if necessary) | None (insured by buyer if necessary) | Seller is obligated to arrange and pay for insurance |
| Organization of transportation | Seller | Buyer | Seller |
Choosing CFR (Cost and Freight) as the delivery term entails certain benefits and risks for each party involved in the transaction. Understanding these aspects is critically important for making an informed decision about the appropriateness of using this term in a specific commercial context.
5.1 Advantages of CFR for the Seller:
- Control over the logistics chain: The seller retains full control over the choice of carrier, delivery route, and terms of sea transportation. This allows the use of trusted partners, securing corporate discounts, and ensuring predictability in logistics processes. Experienced exporters can optimize freight costs through cargo consolidation and long-term agreements with shipping lines.
- Limitation of transportation risks: Since the risks transfer to the buyer at the moment the goods are loaded onto the vessel, the seller is protected from most sea transport risks such as storms, piracy, general average, and port delays. This is especially important for shipments over long distances and to regions with unstable political situations.
- Ability to include a margin in transportation costs: CFR allows the seller to include not only the actual transportation expenses but also their own margin for organizing the delivery in the price of the goods. This creates an additional source of profit while maintaining an attractive offer for the buyer.
5.2 Disadvantages of CFR for the Seller:
- Financial obligations before receiving payment: The seller is often required to advance substantial amounts to cover freight costs, frequently before receiving payment from the buyer. This creates additional pressure on working capital and financial risks, especially when dealing with new buyers or in unstable economic conditions.
- Responsibility for choosing the carrier: Although the risks to the cargo transfer to the buyer, the seller bears reputational risks associated with selecting an unreliable carrier. Delays or delivery issues can negatively impact the relationship with the buyer, even if the formal responsibility lies with the buyer.
5.3 Advantages of CFR for the buyer:
- Simplified logistics: The buyer is relieved from the need to organize sea transportation, find carriers, negotiate freight terms, and coordinate shipments. This is especially valuable for companies with little experience in international logistics or those handling smaller volumes.
- Predictability of transportation costs: CFR provides transparency of the total expenses for purchasing goods with shipping, which simplifies budget planning and the comparison of commercial offers. The buyer knows the full cost of the goods at the destination port in advance.
- Flexibility in insurance: The absence of mandatory insurance from the seller gives the buyer the freedom to choose their own insurance company, coverage terms, and policy amount. Experienced importers can secure more favorable insurance rates or leverage corporate insurance programs.
5.4 Disadvantages of CFR for the buyer:
- Assumption of transportation risks: The buyer assumes all risks related to the sea transportation from the moment the goods are loaded onto the ship. This includes risks of cargo damage, general average, piracy, force majeure events, and delivery delays that may result in significant financial losses.
- Limited control over transportation: Despite assuming the risks, the buyer has no influence over the choice of carrier, delivery route, or shipping conditions. This can cause issues when urgent delivery or special transportation requirements are needed.
CFR is appropriate for international trade transactions where shipping is carried out by sea or inland waterways, and cargo insurance is not a priority.
This term is particularly suitable for the shipment of bulk, liquid, or other non-containerized goods, where simplicity of logistics is more important than detailed control over each stage of transportation. In cases where the goods are handed over to the carrier before being loaded onto the vessel at a container terminal, it is recommended to use CPT (Carriage Paid To) instead.
It is advisable to use CFR when:
- The seller has direct access to shipping (e.g., operates a warehouse or production facility near the port) and can independently arrange loading onto the vessel.
- The goods do not require complex or expensive insurance, and the buyer is willing to arrange insurance independently under more favorable conditions.
- The buyer is well-versed in local insurance and logistics practices in the destination country and prefers to manage the risks independently after shipment.
The CFR terms can be a beneficial choice for experienced participants in international trade who have a strong understanding of international logistics, coordination with shipping lines, handling of transport documentation, and management of all stages of the supply chain.
If you lack sufficient experience in international shipping and are unsure how to properly work with CFR Incoterms, Fulfillment-Box offers comprehensive solutions for organizing international deliveries.
Our specialists will assist you with:
- Selecting the optimal route taking into account the specifics of your goods
- Choosing reliable carriers with the best freight terms
- Ensure proper preparation of all shipping documents
- Coordinate the shipping process and provide updates on delivery status
If needed, we organize the entire logistics chain after the cargo arrives at the destination port. Fulfillment-Box will ensure delivery of your goods to any point worldwide, arrange storage at our warehouses in the USA or Europe, ship the goods directly to Amazon FBA warehouses, or deliver them straight to your doorstep.
A well-organized delivery — from contract signing to the arrival of goods at the final destination — minimizes your risks of delays, extra costs, and commercial disputes.
1. What does CFR (Cost and Freight) mean in international trade?
The term CFR means that the seller pays the costs and freight necessary to deliver the goods to the agreed port of destination. However, the risk of loss or damage to the goods transfers to the buyer the moment the goods cross the ship’s rail at the port of shipment.
2. What is the difference between CFR, CIF, and FOB Incoterms?
CFR, CIF, and FOB are all terms used exclusively for sea freight and imply that the risk transfers after the goods are loaded onto the vessel. The main difference lies in the allocation of costs and responsibilities:
✔ CFR — the seller pays for transportation to the destination port but does not insure the cargo;
✔ CIF — same as CFR, but the seller is also obligated to insure the goods;
✔ FOB — the buyer assumes both the risks and costs from the moment the goods are loaded onto the vessel.
3. Who is responsible for obtaining export licenses under CFR?
Under CFR shipping terms, the seller is responsible for obtaining the export license and completing all export formalities, including customs clearance in the country of shipment.
4. Who bears the risks if the goods are damaged during sea transportation?
Since the risk transfers to the buyer at the moment the goods are loaded onto the ship at the port of shipment, any damage or loss during sea transportation is the responsibility of the buyer.
5. Who pays for unloading at the destination port under CFR?
Under CFR terms, unloading the ship at the destination port is the responsibility and expense of the buyer, unless otherwise agreed in the sales contract.
6. Is the seller obliged to provide insurance under CFR?
No, under CFR the seller is not required to provide insurance for the goods. This is the main difference from CIF. The buyer must arrange insurance for the cargo independently.
Get in contact with Fulfillment-Box
Our managers will answer any questions you may have
