What is CFR (Cost and Freight)?

CFR is the sea rule where the seller pays for the journey but the buyer carries its risk. It is CIF without the insurance: the seller has no duty to insure the cargo. For the other rules, see what are Incoterms.

This is a general explanation, not legal, insurance or customs advice.

Why CFR matters

Buyers like a price that includes the freight. Sellers like CFR when they can book sea freight cheaply, for example with a regular carrier.

The catch is the split between cost and risk. The seller pays freight to the destination, yet damage at sea is the buyer's loss. Because the seller does not have to insure, the buyer should arrange its own cargo cover from the moment the goods are on board.

Where delivery happens

Delivery is complete when the goods are on board the vessel at the port of shipment, or when the seller procures goods already shipped. The named place in the term, such as "CFR Rotterdam", is the destination port the seller pays freight to. It is not where risk passes.

Because there are two important places, it helps to state the port of shipment as well in the contract.

Who does what under CFR

The seller

• Contracts for the carriage and pays the freight to the named destination port.
• Delivers the goods on board the vessel and clears them for export.
• Provides the commercial invoice and the usual transport document, such as the bill of lading.
• Carries the risk until the goods are on board.

The buyer

• Carries the risk from the moment the goods are on board.
• Pays unloading costs at the destination port, unless the seller's contract of carriage already includes them.
• Clears the goods for import and pays import duties and taxes.
• Takes delivery from the carrier at the destination port.

Where risk passes

Risk passes on board the vessel, not at the destination port. The seller must give the buyer notice that the goods have been delivered, so the buyer can insure and prepare for arrival.

An example from product sales

Say a kaolin producer's price for 500 tonnes in bulk is $60,000 at its works. For CFR a named destination port, it adds $1,500 for haulage to the port and export clearance, and books the vessel for $9,000 of sea freight, loading included. Its CFR price is $70,500.

If the cargo is damaged by seawater on the voyage, the buyer bears the loss and has to claim on its own insurance. If the buyer wants the seller to arrange cover, the right rule is CIF.

Common mistakes with CFR

• Assuming the seller carries the risk to the destination. It does not.
• Forgetting insurance. Nobody has to insure under CFR, so the buyer must.
• Using CFR for containers handed over at a terminal. CPT fits that case better.
• Leaving unloading unclear. Check whether the freight price includes terminal handling at the destination.

Related terms

• Incoterms: the 11 rules CFR belongs to.
• FOB: the buyer pays the sea freight.
• CIF: CFR plus minimum insurance.
• CPT: the same idea for any mode of transport.
• Landed cost: the buyer's full cost after freight, duty and fees.

How PromptLab handles it

Choose CFR in the trade terms field on the sales order, which lists the 11 Incoterms 2020 rules, and write the destination port in the order's note. If a customer always buys on CFR, store it as the account's preferred terms and each new order fills it in.

Frequently asked questions

What does CFR mean?

CFR means Cost and Freight. The seller pays the sea freight to the named destination port, but risk passes to the buyer once the goods are on board.

Who pays insurance under CFR?

Nobody has to. The seller has no duty to insure, so the buyer should arrange cargo insurance from the moment the goods are on board.

What is the difference between CFR and CIF?

CIF is CFR with insurance. Under CIF the seller must also buy minimum cargo cover for the buyer. Risk passes on board under both.

Can CFR be used for containers?

It can be used, but the rule is made for goods loaded on board a ship. For containers handed to a terminal first, CPT is usually the better fit.

Who clears customs under CFR?

The seller clears export. The buyer clears import and pays the duties and taxes.