What You Need to Know About CFR Shipping Terms in International Trade?

CFR (Cost and Freight) is a widely used international trade term under Incoterms 2020, defined by the International Chamber of Commerce (ICC). This term is specifically applied to sea and ocean freight, particularly for non-containerized or bulk cargo. For containerized cargo, the CPT (Carriage Paid To) term is preferred instead of CFR.

Under CFR shipping terms, the seller is responsible for delivering the goods to the designated port, but once the goods are loaded onto the ship, the risk transfers to the buyer. After this point, the buyer takes on all responsibilities, including paying for insurance and managing any costs once the goods arrive at their destination port. Unlike the CIF (Cost, Insurance, and Freight) incoterm, where the seller is also required to arrange insurance, in CFR, the seller has no obligation to provide insurance for the goods.

Key Aspects of CFR Shipping Terms

• Seller’s Responsibilities: The seller is in charge of delivering goods to the port of shipment and covering the transportation costs up to the port. However, once the goods are loaded onto the ship, their responsibility ends, and the buyer takes over.
• Risk Transfer: While the seller handles the transportation until the goods reach the port, the risk of damage or loss transfers to the buyer as soon as the goods are loaded onto the vessel.
• Insurance: The buyer is responsible for arranging and paying for insurance under CFR terms.
• Charges After the Port: Any costs incurred after the goods reach the destination port are the buyer’s responsibility.

Seller’s Responsibilities in CFR

In a CFR agreement, the seller handles several important steps in the shipping process, including paying for certain costs and arranging the transport of goods up to the designated port. Let’s break this down:

1. Costs Borne by the Seller:

The seller is responsible for covering several key expenses, which include:

• Warehouse charges: Costs for storing the goods before they are shipped.
• Inland transportation charges: Expenses to move the goods from the seller’s warehouse to the port of export.
• Terminal and depot charges: Charges for processing goods at the port and paying any related duties.
• Documentation charges: Fees for preparing important shipping documents like the commercial invoice, packing list, and bill of lading.
• Export customs clearance fees: Costs related to clearing the goods for export, including customs duties.
• Freight charges: The seller pays for the transportation of goods from the port of origin to the port of destination.

2. Freight Responsibilities:

The seller covers all transportation expenses to ensure the goods reach the destination port. They manage the process of moving the goods from the warehouse to the port in the exporting country and then onward to the importing country’s port. However, any charges after that point become the buyer’s responsibility.

3. Risk Transfer:

While the seller arranges for transportation, their liability for the goods ends as soon as the goods are loaded onto the ship at the port of export. From that moment, the buyer assumes responsibility for any risks, such as damage or loss. If there are any delays or issues after loading, including extra fees like demurrage charges (for exceeding the time limit to load or unload goods), the buyer will be liable for them.

4. Insurance:

Under CFR, the seller has no obligation to provide insurance for the goods. However, the seller may assist the buyer with obtaining insurance, but it’s not mandatory. The buyer is ultimately responsible for ensuring the goods are covered from the moment they are loaded onto the ship.

5. Export Customs and Documentation:

The seller handles all export customs procedures and prepares the necessary documentation required for the shipment. This includes providing essential paperwork like the bill of lading, commercial invoice, and packing list. Once these documents are ready, the seller passes them to the buyer, who will need them for import customs clearance.

Buyer’s Responsibilities in CFR

Once the goods have been loaded onto the ship, the buyer’s responsibilities begin. These responsibilities include several crucial tasks, such as:

1. Costs Borne by the Buyer:

The buyer must cover all expenses after the goods are loaded onto the ship, including:

• Insurance: Since the buyer assumes the risk after the goods are loaded, they must arrange and pay for insurance to protect the shipment from any potential losses.
• Import customs and duties: Once the goods arrive at the destination port, the buyer handles customs clearance, paying any duties or taxes.
• Inland transportation charges: The buyer is responsible for transporting the goods from the destination port to the final delivery point.

2. Freight Responsibilities:

The buyer’s main freight-related responsibility is unloading the goods at the destination port and organizing transportation for their final delivery. Since the seller has already paid to get the goods to the port, the buyer’s focus is on managing the last leg of the journey.

3. Risk Transfer:

The risk transfer under CFR happens at the port of export. Once the goods are loaded onto the ship, the risk of loss or damage shifts to the buyer. If the buyer fails to provide proper instructions to the seller about the delivery port, any resulting losses are the buyer’s responsibility.

4. Insurance:

Unlike CIF, where the seller provides insurance, in CFR, the buyer must ensure the goods are covered by an appropriate insurance policy. The buyer can ask for assistance from the seller in finding an insurance provider, but the final responsibility rests with the buyer.

5. Import Customs and Duties:

When the goods arrive at the destination port, the buyer must handle customs clearance and pay any duties, taxes, or other related charges. The buyer also takes care of unloading the goods at the port and transporting them to the final destination.

Frequently Asked Questions About CFR Incoterms

Also Read: Shipping Guarantees in Import-Export: Understanding Meaning, Process, and Examples