Cost and Freight (CFR)

What Is Cost and Freight (CFR)?

Cost and freight (CFR) is a legal term used in foreign trade contracts. In a contract specifying that a sale is cost and freight, the seller is required to arrange for the carriage of goods by sea to a port of destination and provide the buyer with the documents necessary to obtain them from the carrier. With a cost and freight sale, the seller is not responsible for procuring marine insurance against the risk of loss or damage to the cargo during transit. Cost and freight is a term used strictly for cargo transported by sea or inland waterways.

Understanding Cost and Freight (CFR)

Contracts involving international transportation often contain abbreviated trade terms that describe matters such as the time and place of delivery, payment, the conditions under which the risk of loss shifts from the seller to the buyer, and specifying the party responsible for the costs of freight and insurance.

If a buyer and a seller agree to include cost and freight in their transaction, the seller must arrange and pay for transporting the cargo to a specified port. The seller must deliver the goods, clear them for export, and load them onto the transport ship. The risk of loss or damage transfers to the buyer once the seller loads the items onto the vessel but before the main transportation occurs. This provision means the seller is not responsible for securing insurance for the cargo for loss or damage during transportation.

Cost and freight is an International Commercial Term, also called an Incoterm. In order to facilitate foreign trade, the International Chamber of Commerce (ICC) publishes and regularly updates this set of globally-recognized terms that help to create a standard for the terms of foreign trade contracts. International Commerical Terms are intended to prevent confusion by clarifying the obligations of buyers and sellers, such as transport and export clearance obligations and the physical point where risk transfers from the seller to the buyer.

For goods transported internationally by sea or inland waterways, there are three other Incoterms that are closely related to cost and freight and that are frequently used in trade contracts. Free alongside ship (FAS) means the seller only has to deliver the cargo to the port next to the vessel, and responsibility for the goods shifts to the buyer at that point. Free on board (FOB) requires the seller to also load the goods onto the ship. Like cost and freight, the terms of cost insurance and freight (CIF) require that the seller arranges for the carriage of goods by sea to a port of destination, but the seller has the additional obligation of insuring the goods until they reach the destination port. In cost and freight, the seller is not responsible for insuring the goods until they reach the destination port.

What Does Cost and Freight (CFR) Entail?

Cost and freight is a term used strictly for cargo transported by sea or inland waterways. If a buyer and a seller agree to include cost and freight in their transaction, the seller must arrange and pay for transporting the cargo to a specified port. The seller must deliver the goods, clear them for export, and load them onto the transport ship. The risk of loss or damage transfers to the buyer once the seller loads the items onto the vessel but before the main transportation occurs. This provision means the seller is not responsible for securing insurance for the cargo for loss or damage during transportation.

What Is an Incoterm?

CFR is an incoterm which is short for International Commercial Term. In order to facilitate foreign trade, the International Chamber of Commerce (ICC) publishes and regularly updates this set of globally-recognized terms that help to create a standard for the terms of foreign trade contracts. International Commercial Terms are intended to prevent confusion by clarifying the obligations of buyers and sellers, such as transport and export clearance obligations and the physical point where risk transfers from the seller to the buyer.

What Other Incoterms Are Similar to Cost and Freight?

There are three other incoterms that are closely related to cost and freight and that are frequently used in trade contracts. Free alongside ship (FAS) means the seller only has to deliver the cargo to the port next to the vessel, and responsibility for the goods shifts to the buyer at that point. Free on board (FOB) requires the seller to also load the goods onto the ship. Cost insurance and freight (CIF) require that the seller arranges for the carriage of goods by sea to a port of destination, but the seller has the additional obligation of insuring the goods until they reach the destination port. In cost and freight, the seller is not responsible for insuring the goods until they reach the destination port.