CFR (Cost and Freight)

CFR meaning is Cost and Freight, which is an Incoterm related to ocean freight shipping. Under this Incoterm, the seller is responsible for delivering the goods to the port specified by the buyer and also bears the cost of transporting goods to the destination port.

The risk of the goods will transfer to the buyer when they are boarded on the vessel, but the cost will be paid when the goods arrive at the named port of destination.

The CFR Incoterm agreement needs to clearly specify the particular or named port of destination and the actual point within the named port of destination where the transfer cost will occur.

This type of agreement is useful for oversized, overweight or bulk cargo that is not able to fit into a standard container or exceeds the container's weight limitation.

Cost and Freight Incoterm is a legal agreement between the seller and buyer in International Trade, which applies to goods transported via sea or ocean. It helps us understand the buyers' and sellers' responsibilities in detail.

-Seller’s Responsibility Under CFR Incoterm Agreement

-Export Packaging: Under CFR Incoterm, one of the seller's crucial responsibilities is to ensure that goods are properly packaged according to international shipping standards for transport.

-Loading Charges: The seller is also responsible for paying the loading charges at the initial pick-up location where the goods have been packaged.

-Delivery to Place or Port: Another crucial responsibility of the seller under the CFR Incoterm agreement is transferring the goods to the specified port or named place as per the contract.

-Export Formalities: The seller is also responsible for managing all the export-related paperwork, such as customs clearance, taxes and duties, under the CFR agreement.

-Origin Terminal Charges: Under the CFR Incoterm, the seller is also responsible for the origin terminal charges incurred during the transport of the goods, such as handling fees.

-Loading Onto Carriage: Another crucial responsibility of the seller is loading the goods or products onto the main shipment vehicle.

-Main Freight Charges: Under the CFR agreements, the seller is also responsible for covering the main freight charges. These charges usually cover the cost of transporting the goods to the named destination.

-Buyer’s Responsibility Under CFR Incoterm Agreement

-Destination Port Charges: Under Cost and Freight Incoterm, the buyer's crucial responsibility is to pay the charges incurred for unloading and handling the goods at the destination port.

-Delivery to Final Destination: Another crucial responsibility of the buyer is taking responsibility for the goods once they arrive at the named port and arranging transport for the final delivery point.

-Unloading at Destination: The buyer is also responsible for covering the cost associated with unloading the goods at the destination point.

-Import Formalities: Another crucial responsibility buyers need to fulfill under CFR Incoterm is managing all import-related formalities, such as customs clearance, taxes and duties in the destination country.

Cost and Freight Incoterm has certain advantages and disadvantages. Let us understand both in detail:

-Advantages of CFR Incoterm

• One crucial advantage of CFR Incoterm is that the seller is familiar with the export process and regulations in their country, so they can easily handle the shipment and negotiate better shipment rates.

• Another advantage of CFR Incoterm is that sellers cover the cost of freight, which gives buyers a clear picture of shipping expenses. This allows them to better budget and plan.

• Since the shipping process is offloaded to the seller under CFR Incoterm, the buyer can focus on the work process and business growth.

• Under CFR Incoterm, the seller is not obligated to provide insurance to the buyer. Hence, buyers have the flexibility to choose insurance that fits their needs and requirements.

• Another advantage of CFR is that it reduces the surprises and shocks of hidden charges and any unexpected fees during transport.

-Disadvantages of CFR Incoterm

• One of CFR Incoterms main disadvantages is the transfer of risk. Under this arrangement, the risk is transferred immediately to the buyer as the goods are loaded onto the vessel in the shipment port.

• The CFR does offer buyers flexibility on the insurance aspect, but it imposes a burden on the buyer to get comprehensive insurance coverage.

• Another disadvantage of CFR Incoterm for buyers is that they need to handle the documentation for import at the destination point, which can be time-consuming and challenging.

• The seller is responsible for the transportation cost of the shipping goods to the destination port, but buyers also need to pay a major chunk of the remaining costs, such as uploading costs, transportation costs, taxes, import duties and more.

To fully reap CFR Incoterm benefits, businesses need to know when to opt for a Cost and Freight Incoterm agreement.

• If the business is buying bulk and non-containerised cargo, it is best to go with CFR Incoterm. These non-containerised cargoes can include automobiles, large equipment, raw materials, etc.

• Businesses that deal with products that can be loaded on the ship directly or can be stored in a container find CFR Incoterm beneficial.

• For businesses that are not well-versed in international logistics, CFR can simplify the shipping process. The seller arranges transport to the destination port, and the buyer only has to handle the goods upon arrival.

• If the seller has established relationships with shipping companies, they may be able to negotiate better freight rates, which can be a cost-saving advantage passed on to the buyer.

• Under CFR Incoterm, the buyer gains control over customs clearance and inland transportation at the destination.

This empowerment may be preferable for businesses wanting to manage these processes directly, giving them a sense of control and responsibility.

CFR Incoterm is a powerful tool in international trade. It is commonly used for sea and ocean freight, particularly for non-containerised and bulk cargo.

This Incoterm facilitates effective cost management, clear risk distribution and a well-defined division of logistics responsibilities between the buyer and seller.

For businesses to fully benefit from CFR, it is essential to have a thorough understanding of its terms and how it operates in international shipping, ensuring they feel informed and prepared.

In addition to using the CFR Incoterm, import and export businesses face various risks that can lead to significant financial burdens.

To safeguard against such situations, companies should consider purchasing a marine insurance policy to protect their assets from loss or damage during sea transit.

Given the high volume of import and export activities, various types of marine insurance in India are available. Choose the marine insurance plan that fits your business budget and requirements.

TATA AIG offers a range of SME insurance plans, including the marine open policy, which provides coverage for goods across multiple shipments throughout the year.

This cost-effective solution is ideal for businesses that engage in frequent shipments, ensuring continuous protection without the need for individual policies for each shipment.

-What is the CFR freight cost?

The CFR cost refers to the expenses the seller incurs to transport goods to the destination port. This cost includes shipping charges up to the port of arrival.

Still, it excludes insurance, which remains the buyer’s responsibility, along with other post-arrival costs like import duties and inland transportation.

-Which one is better: CFR or CIF?

Cost, insurance, and freight are generally considered better for buyers than cost and freight, as CIF includes insurance coverage during transit, providing added protection for the goods.

However, the buyer is responsible for arranging and paying for insurance, which can increase their risk. Due to the inclusion of insurance, CIF may have slightly higher costs.

-When to use CFR Incoterm?

CFR Incoterm is best when shipping goods via sea or inland waterway, and the buyer prefers the seller handle the transportation cost up to the destination port.

It is ideal for bulk or non-containerised cargo, with the buyer assuming risk and responsibility for insurance and other costs once the goods are loaded onto the ship.