Moving goods across international borders involves more than just placing cargo on a ship. There are costs to consider, rules to follow and responsibilities to divide between buyers and sellers. This is where Cost and Freight (CFR) comes in. It offers a clear framework for managing shipping expenses and handling obligations in sea trade. Let's understand this in detail.
What does CFR mean in shipping?
CFR (Cost and Freight) is a sea shipping term where the seller pays to transport goods to the buyer’s port, including export paperwork, port transport, loading and ocean freight. The seller handles packaging, documentation, customs clearance and loading, but risk transfers to the buyer once the goods are on board, even though the seller covers shipping costs.
Key components of CFR pricing
Understanding what CFR covers and what it leaves out helps you plan your shipping costs more accurately. Here is a closer look:
- Origin-side costs: Seller covers export packaging, documentation, warehouse handling and transport to the departure port, responsible until goods are loaded onto the vessel.
- Port and loading charges: Seller pays terminal handling fees and loading costs, completing export-side responsibility.
- Ocean freight: The largest CFR cost, varying by route, distance and market conditions.
- Insurance exclusions: CFR excludes marine insurance; buyers must arrange marine coverage once goods are on board.
- Destination-side costs: Unloading, terminal fees, customs duties and final delivery are handled by the buyer.
Example of CFR shipping term
In a CFR shipment of 80 tonnes of aluminium sheets from India to South Korea, the seller handles packing, transport to the port, export formalities, terminal charges, loading and ocean freight. Risk transfers to the buyer once the goods are on board. At the destination port, the buyer manages unloading, port charges, customs duties and final delivery.
Difference between CFR and CIF
CFR and CIF both require the seller to pay ocean freight and transfer risk to the buyer once goods are loaded. The key difference is insurance: under CFR, the buyer arranges coverage, while under CIF, the seller provides basic insurance to the destination port. CIF suits buyers who want insurance included, whereas CFR suits those who prefer to manage their own coverage.
Role of insurance in CFR shipments
Under CFR, the seller does not provide insurance, so the buyer must arrange marine coverage once the goods are on board. This protects the cargo against damage, bad weather or rough handling during transit.
Advantages and disadvantages of CFR
CFR simplifies budgeting for the buyer, as the seller handles sea transport, export paperwork, port fees and loading, reducing the buyer’s responsibilities at origin. However, risk transfers to the buyer once goods are loaded, insurance is not included, and the buyer covers all destination-side costs, including unloading, customs duties and final delivery.
Conclusion
CFR cost and freight is best suited to transactions where the priority is moving goods efficiently by sea without adding unnecessary complexity. It clearly defines the responsibilities of both buyers and sellers, making it especially effective for bulk cargo and large-volume shipments that benefit from straightforward cost and risk allocation rather than end-to-end control.
FAQs
1. What does cost and freight mean in international trade?
Cost and freight means the seller pays to transport the goods to the destination port. But the risk shifts to the buyer as soon as the goods are loaded on the ship.
2. When is CFR the right choice?
It suits shipments where the seller can secure reasonable freight rates and the buyer manages insurance and destination charges.
3. Can CFR be used for all types of transport?
CFR is only applicable to sea and inland waterway transport. It is not suitable for air, road or multimodal shipments.
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