Ever stared at a quote with 'CFR Shanghai' and had to pause to clarify who's on the hook for risk, insurance, and unloading costs? You're not alone.
What is Cost and Freight (CFR)?
Cost and Freight (CFR) is an Incoterm where the seller is responsible for the cost of the goods plus the freight charges to the named destination port. However, risk transfers when goods are loaded on board the vessel at the port of origin.
Under Incoterms 2020, CFR is recommended for non-containerized sea freight and inland waterway transport only.
Seller's Obligations:
- Provide goods and commercial invoice
- Handle all export licenses and customs
- Arrange and pay for freight to destination port
- Load goods onto the vessel
- Provide transport documents
Buyer's Obligations:
- Pay for goods per contract
- Obtain import licenses and handle import customs
- Arrange and pay for insurance (optional but recommended)
- Handle all costs after arrival at destination
The Core Comparison: CFR vs. CIF vs. FOB
CFR vs. CIF
Identical except: under CIF, the seller must purchase insurance. CIF = CFR + Insurance.
CFR vs. FOB
Under FOB, the seller's responsibility ends at vessel loading and the buyer pays for freight. Under CFR, the seller also pays for freight to destination.
| Feature | CFR | CIF | FOB |
|---|---|---|---|
| Seller pays freight? | Yes | Yes | No |
| Seller pays insurance? | No | Yes | No |
| Risk transfer point | On board vessel at origin | On board vessel at origin | On board vessel at origin |
How to Calculate a CFR Price
CFR Price = FOB Price + Main Freight Charges
Example: 10 pallets, Shanghai to Los Angeles
- Cost of Goods: $20,000
- Trucking to Shanghai Port: $300
- Export Customs Fees: $150
- Origin Port Handling: $250
- FOB Shanghai Price: $20,700
- Ocean Freight: $3,000
- CFR Los Angeles Price: $23,700
Critical Mistakes to Avoid
Mistake #1: Forgetting Insurance
Under CFR, the BUYER is responsible for insurance. If the vessel sinks and the buyer hasn't secured insurance, the loss is entirely theirs.
Mistake #2: Using CFR for Containerized Shipments
CFR is not appropriate for container shipping. Use CPT (Carriage Paid To) instead, where risk transfers at the terminal.
FAQ
When does risk transfer under CFR?
When goods are loaded on board the vessel at the port of origin.
Does CFR include customs clearance?
Only export customs (seller's responsibility). Import customs is the buyer's responsibility.
Is CFR suitable for all transport modes?
No. CFR is for sea and inland waterway only. Use CPT for air, road, or rail.
What documents must the seller provide?
Commercial invoice and a clean, negotiable transport document (typically a Bill of Lading).
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