Glossary term
Cost and Freight (CFR)
Cost and Freight is an Incoterms rule where the seller pays transport to the destination port, but risk transfers when goods are loaded on the vessel.
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What Is Cost and Freight (CFR)?
Cost and Freight, or CFR, is an Incoterms rule for sea and inland waterway shipments. Under CFR, the seller arranges and pays for transporting goods to the named destination port, but the risk of loss or damage transfers to the buyer once the goods are loaded on board the vessel at the port of shipment.
That split is the heart of CFR. The seller pays freight to the destination, but the buyer bears the transit risk after loading. The buyer usually needs to arrange cargo insurance if protection is wanted during the main sea voyage.
Key Takeaways
- CFR applies to sea and inland waterway transport.
- The seller pays freight to the named destination port.
- Risk transfers to the buyer when goods are loaded on the vessel.
- CFR does not require the seller to buy insurance for the buyer.
- The named port and contract wording are critical to cost and risk allocation.
How CFR Works
A seller using CFR must deliver the goods on board the vessel, clear them for export, and pay the cost of carriage to the named destination port. The seller's freight obligation can make CFR look buyer-friendly at first glance. But once the goods are on board, risk shifts to the buyer even though the seller is still paying the freight contract.
For example, if goods are damaged at sea after loading, the buyer may bear the loss even though the seller arranged and paid for the ocean freight. That is why CFR should not be read as seller-paid transportation plus seller-borne risk all the way to destination.
CFR Versus CIF
Term | Seller pays freight? | Seller provides insurance? |
|---|---|---|
CFR | Yes, to named destination port | No required buyer insurance |
CIF | Yes, to named destination port | Yes, minimum cargo insurance required |
CFR and CIF are close relatives. Both put freight cost on the seller and transfer risk after loading. The major difference is insurance. Under CIF, the seller must procure insurance meeting the rule's requirements. Under CFR, the buyer must decide whether and how to insure.
Commercial Risks
CFR can create misunderstandings because cost and risk move at different moments. A buyer may assume the seller is responsible until arrival because the seller pays freight. A seller may assume the buyer understands that risk transferred earlier. The contract should name the port clearly and align the sales contract, freight documents, payment terms, and insurance.
CFR is also not ideal for every shipment. For containerized goods handed to a carrier before loading, other rules may fit better because the seller may lose physical control before the on-board risk-transfer point.
Example
Assume a seller in Shanghai sells machinery to a buyer in Los Angeles under CFR Los Angeles. The seller clears the goods for export, loads them on the vessel, and pays freight to Los Angeles. Once the machinery is loaded on board in Shanghai, the buyer carries the sea-transit risk. If the buyer wants protection against loss or damage during that voyage, the buyer should arrange insurance.
This example shows why the named destination port does not by itself decide risk. The destination port tells where the seller pays freight to; the on-board loading point controls when risk transfers.
Payment terms can add another layer. A letter of credit may require specific transport documents, while the Incoterms rule governs cost and risk allocation. The documents and trade term need to tell the same story.
The Bottom Line
Cost and Freight means the seller pays to move goods to the named destination port, but the buyer takes risk once the goods are loaded on the vessel. The rule can work well for seaborne trade, but insurance and risk-transfer timing need to be understood before the contract is signed.