Incoterm CFR (Cost and Freight): your supplier pays the freight, but the risk is yours
The CFR Incoterm (Cost and Freight) is a rule used exclusively for sea and inland waterway transport. Under this term, the seller pays for the main carriage (sea freight) to the agreed port of destination, but the risk for the goods transfers to the buyer at the port of origin.
It is crucial to understand this Incoterm, as responsibility for costs and risk are split at two different points in the logistics chain.
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How CFR works: delivery and risk are split
Practical example:
Transport organisation at origin
The Chinese supplier organises and pays for the transport from their factory to the Port of Shanghai.
Loading on board the vessel
The supplier also handles the loading of the panels on board the vessel.
Transfer of risk
The moment the panels cross the ship's rail in Shanghai, the risk of any damage or loss passes to you, the buyer.
Cost distribution
The supplier pays for the sea freight from Shanghai to Southampton.
Your responsibility
If the container with the panels falls into the sea during the voyage, the cost of the loss is yours. Once the goods arrive in Southampton, you are responsible for unloading, import customs clearance, and all costs up to your warehouse.
Responsibilities under Incoterm CFR
Seller's responsibility:
- Packing and preparing the goods.
- Arranging and paying for land transport at origin.
- Arranging and paying for export customs clearance.
- Loading the goods on board the vessel.
- Arranging and paying for sea freight to the port of destination.
- Assuming risk until the goods are on board.
Your Responsibility as a buyer:
- Assuming the risk from the moment the goods are on board the vessel at the port of origin.
- Arranging and paying for goods insurance (highly recommended).
- Arranging and paying for unloading at the port of destination.
- Arranging and paying for import customs clearance, taxes, and duties.
- Paying for transport from the port of destination to your warehouse.
CFR vs. CIF: the key difference is insurance
CFR
The seller is not obligated to arrange insurance. It is your responsibility as the buyer to protect the cargo.
CIF
The seller is obliged to arrange minimum insurance for the goods in your favour.
Other Incoterms
Ex Works
The least responsibility for the seller. The goods are delivered at their warehouse or factory. The buyer assumes all costs and risks from that point.
Free Carrier
The seller delivers the goods to the carrier designated by the buyer.
Carriage Paid To
The seller pays for transport to the agreed destination.
Carriage and Insurance Paid To
The seller pays for transport and insurance to the agreed destination.
Delivered at Place Unloaded
The seller assumes all costs and risks until the goods are delivered and unloaded at the agreed destination (e.g., a terminal or warehouse).
Delivered At Place
The seller delivers when the goods are made available at the agreed place.
Delivered Duty Paid
The seller assumes all costs and risks until final delivery.
Free Alongside Ship
The seller delivers the goods to the carrier designated by the buyer.
Free On Board
The seller delivers when the goods pass the ship's rail.
Cost, Insurance and Freight
The seller pays the cost, insurance and freight to the destination port.
