CFR (Cost and Freight) is an international trade term that specifies the obligations, costs, and risks associated with the delivery of goods from the seller to the buyer, according to the Incoterms standards.
1. What is CFR?
CFR (Cost and Freight) is an international trade term that specifies the obligations, costs, and risks associated with the delivery of goods from the seller to the buyer, according to the Incoterms standards published by the International Chamber of Commerce (ICC).
Under the CFR condition, the seller is responsible for delivering the goods onto the vessel or procuring the goods to be delivered in that manner. The risk of loss or damage to the goods transfers to the buyer when the goods are delivered on board the vessel. The seller must contract for and pay the necessary costs and freight charges to bring the goods to the named port of destination. In this condition, the seller has no obligation to the buyer regarding the insurance contract, so if required, the buyer should arrange insurance coverage to avoid risks.
2. Guidelines for using CFR – Incoterms 2020
2.1. Mode of transport
This condition is used for maritime and inland waterway transport. CFR is not suitable when the goods are delivered to a carrier before being loaded onto the vessel, for example, when the goods are packed in containers and typically delivered at a terminal at the port. In such cases, the CPT condition should be used.
2.2. Transfer of goods and risk (CFR – Cost and Freight)
Cost and freight mean the seller must deliver the goods onto the vessel or procure the goods to be delivered in that manner. The risk of loss or damage to the goods transfers to the buyer when the goods are delivered on board the vessel. The seller must contract for and pay the necessary costs and freight charges to bring the goods to the named port of destination.
Under this condition, the seller has no obligation to the buyer regarding the insurance contract. However, the seller must provide the necessary information if the buyer requests it and bear the risk and cost, if any, related to the insurance coverage.
This condition has two important ports: the port of shipment where the goods are delivered on board the vessel and the port of destination. The risk transfers from the seller to the buyer when the seller delivers the goods by placing them on board the vessel at the port of shipment or procuring the goods to be delivered in that manner. However, the seller remains responsible for contracting for the carriage of goods to the named port of destination.
This condition has two specified delivery points as the risk and cost are divided in two different places. While the contract always states the destination port, it may not specify the port of loading – the place where the risk transfers to the buyer. If the port of dispatch is of particular significance to the buyer, the parties should specify it in the contract as specifically as possible.
The parties should identify the specific place at the named destination port and the costs associated with that place to be borne by the seller. The seller should contract for transportation to this specific place. If, under the transportation contract, the seller is responsible for the costs related to unloading at the named port of destination, the seller has no right to claim reimbursement from the buyer unless otherwise agreed.
2.3. Involvement of multiple carriers
The involvement of multiple carriers in transporting goods through multiple ports during the entire transportation process is common. For example, the first carrier will operate a feeder vessel from Hong Kong to Shanghai, after which the goods will be transferred to the main carrier vessel to be transported to Southampton. The question arises as to where the risk transfers from the seller to the buyer – at Hong Kong or Shanghai? The parties can negotiate and base it on the contract. However, in the absence of any agreed-upon arrangement, the default place where the risk transfers for the delivered goods is when they are delivered to the first carrier, in this case, Hong Kong. If both parties want the transfer point to be Shanghai or any other place, they can include this in the contract.
2.4. Unloading costs at the port of destination
If the transportation contract signed by the seller includes the unloading costs at the port of destination, the seller will be liable for these costs, unless the parties have agreed in advance that the seller will be reimbursed by the buyer for these costs.
2.5. Export/Import customs obligations
The CFR condition requires the seller to complete export customs formalities, if necessary. However, the seller is not obligated to complete import customs formalities or transit customs formalities in any third country that the goods may pass through, not responsible for import duties or costs associated with import customs procedures.
3. Displaying Incoterms CFR on the international sales contract
The expression of the CFR condition on the international sales contract: CFR [named destination port] Incoterms 2020
For example: CFR Los Angeles, United States Incoterms 2020
4. Obligations between the seller and the buyer
A. SELLER’S OBLIGATIONS:
A1. General obligations of the seller
The seller must provide the goods and a commercial invoice conforming to the sales contract and any other appropriate evidence mentioned in the contract.
Any documents provided by the seller can be in traditional written format or electronic format if agreed upon or customary.
A2. Delivery of goods
The seller must deliver the goods by delivering them onto the vessel or procuring the goods to be delivered in that manner. The seller must deliver the goods on the agreed-upon date or within the agreed-upon period, in the usual manner at the port.
A3. Transfer of risk
The seller bears all risks of loss or damage to the goods until the goods are delivered according to A2, except for any loss or damage mentioned in B3.
A4. Transport
The seller must contract for the carriage of goods to the agreed place of delivery, if specified, at the named port of destination, or to any other place at that port. The contract of carriage must be concluded on usual terms, with costs borne by the seller, and the goods must be transported by the usual route with a vessel of the type normally used for carrying such goods.
A5. Insurance
The seller has no obligation to the buyer regarding the insurance contract. However, the seller must provide, if requested by the buyer, and bear the risk and cost, if any, the necessary information the buyer requires for insurance.
A6. Document delivery/transport
The seller must, at its expense, provide the buyer with usual transport documents without delay at the agreed-upon port.
These transport documents must indicate that the goods conform to the contract, show the date within the agreed-upon delivery period, enable the buyer to take delivery of the goods from the carrier at the named destination port, and, unless agreed otherwise, allow the buyer to sell the goods during transit by transferring the transport documents to the next buyer or by notifying the carrier.
When transport documents are issued in multiple originals and are negotiable, a full set of originals must be presented to the buyer.
A7. Export customs clearance
a) Regarding export customs clearance
If necessary, the seller must arrange and bear all costs relating to export customs formalities as required in the export country, such as:
- Export license;
- Security screening for exported goods;
- Inspections for exported goods; and
- Any legal requirements.
b) Assistance with import customs clearance
If necessary, the seller must assist the buyer when requested, bearing the risk and cost, in obtaining documents/information necessary for import customs or transit customs formalities, including security and inspection requirements in the transit country or importing country.
A8. Inspection – Packaging, marking
The seller needs to bear the costs of any necessary inspection (such as quality control, weighing, measuring, counting) for the delivery of goods as stated in A2.
The seller must package the goods and bear the costs unless it is customary for the particular type of goods to be shipped unpackaged.
The seller must pack and mark the goods appropriately for the mode of transport, unless the parties have specifically agreed on the manner of packing and marking at the time of signing the contract.
A9. Division of costs
The seller must pay:
a) All costs related to the goods until they are delivered according to A2, except the costs the buyer pays according to B9;
b) Transportation costs and any related costs incurred from A4, including handling charges and security-related costs;
c) Any fees for unloading the goods at the port of destination, provided they are within the transport contract the seller signed with the carrier;
d) Transit costs if such costs are stated in the transport contract the seller has concluded;
e) Costs of providing evidence to the buyer under A6 that the goods have been delivered;
f) If required, export customs clearance, export duties, and any other related costs, as per A7(a); and
g) Reimbursement to the buyer for all costs and fees related to the buyer’s assistance in obtaining necessary documents and information under B7(a).
A10. Notice to the buyer
The seller must give notice to the buyer that the goods have been delivered according to A2 and should also promptly provide any necessary information to enable the buyer to take delivery.
B. BUYER’S OBLIGATIONS:
B1. General obligations of the buyer
The buyer must pay the price of the goods as specified in the sales contract.
Any documents provided by the buyer can be in traditional written format or electronic format if agreed upon or customary.
B2. Taking delivery of goods
The buyer must take delivery of the goods when they have been delivered according to A2 and take delivery from the carrier at the designated port.
B3. Transfer of risk
The buyer bears all risks related to the loss or damage of the goods from the time of delivery according to A2.
If the buyer fails to give notice to the seller as specified in B10, the buyer will bear all risks and costs related to the loss or damage of the goods from the specified date or the last day of the agreed-upon delivery period, provided that the goods are identifiable as the contract goods.
B4. Transport
The buyer has no obligation to the seller regarding the conclusion of a transport contract.
B5. Insurance
The buyer has no obligation to the seller regarding the insurance contract.
B6. Evidence of delivery of goods
The buyer must accept the transport documents provided under A6 if they conform to the contract.
B7. Import customs clearance
a) Assisting with export customs clearance
If necessary, the buyer must assist the seller when requested, bearing the risk and cost, in obtaining documents/information related to export customs clearance, including security and inspections before export as required by the export country.
b) Import customs clearance
If necessary, the buyer must complete and bear the costs of import customs clearance required in the transit country or importing country, such as:
- Import license or any necessary permits for transit;
- Security screening for imported goods and in transit;
- Inspections of goods; and
- Any legal requirements.
B8. Inspection – Packaging, marking
The buyer has no obligation to the seller.
B9. Division of costs
The buyer must:
a) Pay all costs incurred related to the goods from the time of delivery according to A2, except for costs the seller pays under A9;
b) Pay the costs of transit of the goods, unless they are in the transport contract the seller has signed;
c) Pay the costs of unloading, including lighterage and wharfage fees unless they are included in the transport contract the seller has signed;
d) Reimburse all costs and fees the seller has incurred when assisting the buyer under A5 or A7(b);
e) Pay all taxes, duties, and any other costs, as well as costs associated with customs procedures for transit and import, as specified in B7(b), if applicable;
f) Pay all costs resulting from failure to timely notify the seller as specified in B10, from the specified date or the expiry date of the agreed-upon delivery period, provided that the goods have been clearly identified as the contract goods.
B10. Notice to the seller
If the buyer has the right to prescribe the time of delivery and/or the place of destination or the point of taking delivery at the named destination, the buyer must give timely notice to the seller of those requirements.