"Cost and Freight" (CFR) is an Incoterm used specifically for sea and inland waterway transport. It requires the seller to cover the costs and freight necessary to bring the goods to the named port of destination, but the risk transfers to the buyer as soon as the goods are loaded onto the shipping vessel.
CFR Definition and Scope
Under CFR, the seller is responsible for arranging and paying for transportation to the destination port. However, the risk transfers to the buyer once the goods pass the ship's rail at the shipment port. This term is suitable for goods transported in bulk or not containerized.
Seller’s Obligations
- Arrange and pay for the transportation of goods to the named port of destination.
- Clear the goods for export and handle all associated formalities and costs.
- Provide the buyer with the necessary shipping documents to obtain the goods at the destination port.
Buyer’s Obligations
- Assume all risks for loss or damage to the goods once they have been loaded onto the vessel at the port of shipment.
- Pay for insurance coverage from the port of shipment to the port of destination.
- Handle the unloading of the goods and any subsequent transportation from the destination port.
Risk and Cost Transfer Points
Risk transfers from the seller to the buyer when the goods pass over the ship's rail at the port of shipment. The seller is responsible for freight and other costs up to this point.
Benefits and Considerations
- Benefits: CFR simplifies the seller’s responsibilities by limiting them to arranging and paying for transportation to the destination port.
- Considerations: The buyer needs to ensure that they have adequate insurance from the point the goods are loaded at the shipment port, as they bear the risk during the sea transit.
Common Scenarios
- Often used when the buyer can manage the risks associated with sea transportation.
- Suitable for transactions involving commodities like grain, oil, or coal, where the seller can capitalize on favorable freight rates.