- Risk and cost transfer from seller to risk and cost transfer from seller to buyer at different points.
- The CFR clearly defines the point at which the risk of loss or damage during transportation moves from the seller to the buyer. This helps both parties understand and manage the risk.
Definition of CFR

Cost and Freight (CFR) is an Incoterm used in international trade to define the seller’s responsibilities in shipping goods. Under CFR, the seller arranges and pays for transporting goods by sea or inland waterways to a specified destination port and provides the necessary documents for the buyer to claim the goods. However, the seller is not obligated to procure marine insurance for the cargo. CFR offers a standardized framework for global trade, clarifying the costs, risks, and roles of both parties in the transaction.
Similar Incoterms to Cost and Freight (CFR)

Apart from the CFR, there are many other Incoterms that outline varying degrees of risk and transportation costs being assumed by the buyer and the seller in international business. These terms depend on the point at which risks in the goods shift from the seller to the buyer and who bears the costs of transportation. Here are some similar Incoterms to CFR:
1. Cost, Insurance and Freight (CIF)
Definition: CIF is comparable to CFR but here the cost includes insurance that the seller has procured for the goods during the transportation to the stated port of destination inland waterway transport.
You may want to know: Comprehensive guide to cargo insurance basics
Responsibilities: The risk of physical loss or damage to the goods remains with the seller up to the delivery of goods and although the seller is not obliged to deliver the goods by a particular-carrier, however, if the seller has undertaken financial, responsibility for the cost of delivery main carriage of the goods to the port of destination is on the seller and he must also arrange insurance for the goods up to the point of the port of destination.
Risk Transfer: Occur when business risks are shifted from the seller to the buyer upon delivery of goods when they are over the ship’s rail at the point of shipment.
2. Carriage and Insurance Paid To (CIP)
Definition: CIP is an Incoterm that works where the seller delivers the goods to a carrier or, in the case where the carrier is not suitable, an individual that has been pre-designated by the seller at a specific location (which could be the seller’s business premise).
Responsibilities: The seller has the obligation to make the goods available and take care of the carriage costs up to the named place of destination and also bear the risk of loss of goods in transit by effecting a mucinous insurance for the buyer’s account.
Risk Transfer: – Risk transfers: shifting takes place from the seller to the buyer at the shipper or to any other person agreed by the seller at the time when the goods are handover to the carrier.
You may want to know: Explanation: What is a freight carrier?
3. Delivered at Place (DAP)
Definition: DAP is an Incoterm found with the seller delivering the goods to a terminal or a warehouse agreed with the buyer in the destination country.
Responsibilities: The seller is involved in the delivery of goods, which includes organizing and paying for the transportation cost up to the point of destination in the agreed country and is also subjected to all risks up to the time the goods are ready for delivery at this place.
Risk Transfer: the Risk transfer point passes from the seller unto the buyer in situations where the goods are to be unloaded at the particular agreed upon place when they are ready for that.
4. Delivered at Place Unloaded (DPU)
Definition: DPU is an Incoterm where the seller delivers the goods unloaded from the arriving transport mean to the buyer at a specific place in the country of origin port of destination.
Responsibilities: Seller is accountable of putting into place and at own cost all modes of transport from place of manufacture to the agreed place in the buyer’s country and all risks in transportation are borne by the seller until the goods are ready for unpacking at the agreed place.
Risk Transfer: Relocation of risk from the seller to the buyer that occurs pre shipment inspection, when the purchased goods are ready to be unloaded at the stated location.
5. Free Alongside Ship (FAS)
Definition: FAS is one of the Incoterm where the seller takes the responsibility while placing the goods in the agreed named port of shipment where they are loaded onto the vessel.
Responsibilities: Delivery is the responsibility of the seller; the seller is also required to ensure that the goods are delivered to the Shipping Place and cleared for import clearance export and the goods have to be delivered along with the vessel at the named port of shipment.
Risk Transfer: This transfers the risks from the seller to the buyer when the goods are delivered side by side the vessel at the stated port of export.
6. Free on Board (FOB)
Definition: FOB is an Incoterm, under which the seller is responsible for the shipment up to the point when the goods cross the ship’s rail at the agreed on port of shipment.
Responsibilities: The business is required to make the seller’s deliver the goods in such a manner that the goods are cleared to be exported and transported to the named destination port of shipment.
Risk Transfer: Risk shifts from the seller to the buyer at the rightful time that the goods cross the ship’s line at the named port of origin.
Key Elements of CFR Terms

- Cost: In relation to CFR, the term cost embraced the price paid for the goods as well as all expenses up to the point when the goods were on board the vessel in the port of shipment. This covers the cost of the item and any expenses that may be incurred in order to get the product ready for transportation.
- Freight: “Carriage” means the amount of money the buyer is suppose to insure for the conveyance of the goods from the sellers premise to the agreed port of discharge. This cost represent the transportation mode of sea freight in moving the goods to the desired destination.
Responsibilities of the Seller (Exporter)

When using CFR terms, the seller has several responsibilities:
Delivery to Port
The seller is required to also hand over the goods on or into the vessel agreed by the seller pays buyer at the stated port of origin.
Costs Until Shipment
The seller bears all the costs of moving the goods to the port of shipment and export customs formalities together with all costs relating to the same preceding the loading.
Export Duties and Taxes
The two obligatory charges that may be incorporated into an exporting country’s price list are the exporter responsibilities of duties and taxes.
Responsibilities of the Buyer (Importer)

The buyer’s responsibilities under CFR terms include:
Costs from Shipment: This mean that when the goods are on the vessel all risks and costs pass from the seller to the buyer.
Import Duties and Taxes: One important point that should be remembered that the buyer has to pay for the import duties and the taxes as soon as the goods reach the port of destination.
You may want to know: What is customs duties: What They Mean and Why They Matter
Advantages of Using CFR Terms

These are the advantages of Using CFR Terms
- Clarity and Standardization: CFR terms simplify the sharing of risk and define the scope of each parties’ responsibility and liabilities when it comes to the costs of the transaction.
- Cost Efficiency: Due to the specification that the seller has to bear the cost of freight up to the port of destination, CFR terms can be convenient when determining the price as well as budgeting.
- Global Acceptance: Due to its universality and acknowledgement, CFR is commonly employed in the process of international trade, thus facilitating trade relations between the countries and regions.
Considerations When Using CFR Terms

Transportation Risks: According to the sales agreement terms, the buyer bears the risks of loss or damage on the goods from the time they are laden on the vessel. Thus, buyers need to think about arranging adequate insurance.
Additional Costs: Even though CFR include the cost up to the port of destination, buyers need to know some other costs such as Terminal Charges and Import fees.
Documentation: It is important to obtain insurance, since the bill of lading or the commercial invoice is primary evidence of ownership and help in the clearance of goods through customs direct access.
Practical Applications of CFR Terms

CFR terms are commonly used in various industries, including:
Manufacturing: Since CFR terms relate to costs and responsibilities within the supply chain, many companies importing raw materials or components apply it when allocating such costs and responsibilities.
Retail: Based on its characteristics, some of the main advantages of CFR terms are given below: Cost reduction, Simplified importation of finished goods by eliminating middlemen, etc.
Construction: This situation means that suppliers of construction materials also use CFR terms in order to have timely delivery and costs regulated.
Conclusion
As will be seen later in this paper, these CFR terms are pertinent in any business that deals in trade finance global export or importation of goods across borders. Thus, by knowing the responsibilities and opportunities linked to CFR shipping terms, importers and exporters can control the movement of assets and reduce the risks of loss and excessive expenses while shipping cost transfer. Policies such as clear communication and accurate implementation of Incoterms such as CFR support sound transactions and promote confidence between buyers and sellers of goods all over the world international chamber.
Finally, accepting CFR terms makes international business operations easy, increases the turnover of goods through the elimination of hindrances in a deal and also improves on the operations’ transparency in the global marketplace making it easy for goods to be passed on to the buyer once they cross national borders purchase insurance.
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