In a Cost and Freight (Free cfr shipping terms) transaction, the seller assumes responsibility for delivering the goods to the designated port, loading them onto the vessel, and handling any necessary customs export documentation and export licenses.
Additionally, the seller bears the responsibility for any inspections required before shipment.
Yet, it’s crucial to acknowledge that in a CFR agreement, the seller isn’t required to arrange insurance for the shipment.
What is CFR?
CFR, short for Cost and Freight, is an Incoterm, part of international trade terms guiding buyer-seller responsibilities in import-export deals.
In a CFR deal, the seller shoulders the cost and freight to deliver goods to the designated destination port.
This entails loading goods onto the vessel and managing export paperwork.
Notably, the seller isn’t accountable for insuring goods during transit.
When do you use CFR?
CFR, which stands for Cost and Freight, is a widely used Incoterm in global trade.
Here, the seller handles and pays for shipping the goods to a chosen port.
It’s suitable when the buyer is responsible for insuring the goods upon reaching the destination port.
CFR is favored when the buyer can get good insurance deals or wants to handle insurance themselves.
CFR Risks and Costs for the Seller
Transportation Costs:
The seller is responsible for covering the cost of transporting the goods to the agreed-upon port of destination.
This includes expenses such as freight charges, handling fees, and any other costs associated with delivering the goods to the port.
Loading Costs:
The seller is responsible for the cost of loading the goods onto the vessel at the port of shipment. This involves organizing labor, equipment, and any other resources needed for the loading process.
Export Customs Clearance:
The seller must bear the expenses associated with obtaining any necessary export licenses or permits and completing customs clearance procedures for the goods leaving the country of origin.
Delivery to Port of Destination:
The seller is responsible for ensuring that the goods are delivered to the specified port of destination as agreed upon in the contract.
Risk of Loss or Damage during Transit:
Until the goods are loaded onto the vessel at the port of shipment, the seller is responsible for any loss or damage.
Once the goods are loaded onto the vessel, the risk shifts to the buyer.
Inspection Costs:
If any pre-shipment inspections are required, the seller is typically responsible for covering the associated costs.
Documentation Costs:
The seller must prepare and provide the necessary documentation for export, including the commercial invoice, bill of lading, and any other required documents. These documentation costs are the responsibility of the seller.
It’s important to note that while the seller bears these costs and risks up to the point of loading the goods onto the vessel, they are not responsible for insuring the goods during transit.
Use of Cost and Freight
Cost and Freight (CFR) is a prevalent choice in international trade when sellers undertake to arrange and cover sea transportation costs to a designated port, as agreed upon with the buyer.
Here are some typical scenarios where CFR is applied:
Exporting Manufactured Goods:
Manufacturers from one country sell products to buyers in another country under free CFR shipping terms . The manufacturer ensures sea transport of goods to the buyer’s chosen destination port.
Importing Raw Materials:
Companies procure raw materials or components from foreign suppliers using free CFR shipping terms . The supplier handles shipping to the buyer’s specified destination port.
Global Distribution Networks: Firms with global distribution networks often employ CFR terms for shipping goods between various locations or warehouses worldwide, ensuring standardized procedures and cost sharing.
Bulk Commodities Trading:
CFR terms are prevalent in trading bulk commodities like grain, oil, and minerals. Sellers arrange sea transportation to buyers’ designated ports for large quantities of these commodities.
Cross-border Retailing:
Online retailers or wholesalers buy goods from foreign suppliers on CFR terms to replenish their inventory. Sellers manage logistics, simplifying the purchasing process for buyers.
Construction Projects:
In construction projects involving imported materials or equipment, CFR terms may specify the seller’s responsibility for delivering goods to the nearest port to the construction site.
Overall, CFR serves as a widely accepted Incoterm, offering clarity and standardization in sea freight transactions. It delineates responsibilities for both buyers and sellers, streamlining trade processes efficiently.
cfr terms of delivery
Cost and Freight” (CFR) is one of the Incoterms used in international trade to define the responsibilities and obligations of the buyer and seller regarding the delivery of goods.
Here’s an explanation of CFR terms of delivery:
Cost and Freight (CFR):
Delivery Point: Under CFR, the seller is responsible for delivering the goods on board the vessel at the named port of destination agreed upon in the contract. The named port should be specified precisely to avoid any confusion regarding the delivery location.
Transportation and Costs:
The seller arranges and pays for transportation of the goods to the named port of destination. This includes all costs associated with delivering the goods to the port, such as loading charges, freight costs, export clearance, and any other expenses incurred until the goods are on board the vessel.
Risk Transfer:
The risk of loss of or damage to the goods transfers from the seller to the buyer once the goods are on board the vessel at the named port of destination. From this point onward, the buyer assumes responsibility for any loss or damage that may occur during transit.
Insurance:
Under CFR, the seller is not obligated to provide insurance coverage for the goods during transit. However, the buyer may choose to arrange insurance separately to protect against loss or damage during transportation from the port of loading to the final destination.
Customs Clearance:
The seller is responsible for export customs clearance procedures, while the buyer is responsible for import customs clearance procedures and any associated duties, taxes, and customs fees upon arrival of the goods at the destination port.
Overall,Free cfr terms of delivery are commonly used in maritime trade, providing clarity and delineating responsibilities between the buyer and seller regarding transportation, costs, and risk transfer.
What is the difference between CFR and FOB?
In international trade, Cost and Freight (CFR) and Free on Board (FOB) are common Incoterms, differing in seller and buyer responsibilities:
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Delivery Point:
- CFR: Seller delivers goods to named port, covering cost and freight to that port.
- FOB: Seller’s responsibility ends when goods are loaded onto vessel at named port of shipment, covering delivery cost and loading.
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Transportation Responsibility:
- CFR: Seller arranges and pays for sea freight to port of destination, ending responsibility upon loading.
- FOB: Seller arranges and pays for goods’ transportation to named port, responsibility ends at loading onto vessel.
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Transfer of Risk:
- CFR: Risk transfers to buyer once goods are loaded onto vessel at port of shipment.
- FOB: Risk transfers to buyer once goods pass ship’s rail at port of shipment.
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Insurance:
- CFR: Seller not responsible for insurance; buyer arranges coverage during transit.
- FOB: Seller not liable for insurance; typically, buyer arranges coverage from shipment point.
In summary, while both CFR and FOB terms involve seller responsibility for delivering goods to a specific port, differences lie in when seller responsibility ends, risk transfer, and insurance arrangements.
What is the difference between CFR and CIF?
In international trade, two common terms are Cost and Freight (CFR) and Cost, Insurance, and Freight (
).
These terms differ mainly in the seller’s responsibility for the goods during transit:
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Insurance Responsibility:
- CFR: The seller arranges and pays for the cost and freight to bring the goods to the named port of destination but doesn’t insure them during transit.
- CIF: The seller covers the cost and freight to the named port and also obtains marine insurance against the buyer’s risk of loss or damage during transit.
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Transfer of Risk:
- In CFR agreements, risk shifts to the buyer when goods are loaded onto the vessel at the port of shipment, and the buyer carries the risk during transit.
- In CIF agreements, risk stays with the seller until goods are delivered and discharged from the vessel at the destination port.
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Insurance Coverage:
- CFR: Buyer arranges insurance coverage during transit; the seller isn’t obligated to arrange insurance.
- CIF: Seller must obtain marine insurance covering the goods for the buyer’s benefit, and the cost is included in the overall price.
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Additional Documentation and Costs:
- CIF: Seller provides insurance, possibly requiring additional documentation related to insurance coverage.
- CFR: No additional insurance-related documents or costs beyond shipping and freight.
In conclusion, CFR and CIF terms involve the seller’s responsibility for delivering goods to a specified port. However, Free cfr terms requires the seller to arrange marine insurance for the buyer’s benefit, while CFR does not.