CFR Shipping: The Complete Guide

CFR
CFR

CFR means “Cost and Freight”, a lot of people call it C&F. 

If your trade term is CFR, you just need to find your own freight forwarder and let your supplier send your goods to your freight forwarder’s warehouse. You need to pay for all costs from the warehouse to your home or warehouse.

PS: Bansar provides free warehouse in any city of China, you just need to let your suppliers send your goods to our warehouse, Bansar will handle the left.

You can learn more details from the below guide about CFR incoterms.

Now, let’s dive right into the main subject of this section.

What is CFR?

CFR is an initial of a combination of two words which are Cost and Freight.

It is also common to come across the initial CNF when reading through the same content on Cost and freight.

There is no need to worry because they stand for the same thing.

CFR

CFR – Photo courtesy: International Commercial Terms

The world has developed to a point where business is being conducted across borders.

People are continuously purchasing and selling goods and services from different countries all over the world.

As result, you may need to ship a range of goods from one point to another.

Heavy goods usually require transport by sea (ocean freight or sea freight) and this is the point where cost and freight comes in.

CFR is therefore better understood as an Incoterm where the seller pays for the cost and freight of transporting cargo from one port to another.

Apart from that other charges incurred during the trip such as getting it from the warehouse, transport to the destined port, delivery of the cargo and customs are also catered for by the seller.

In other words, CFR is an internationally agreed term where the seller is expected to assume all the responsibility in terms of cost from the factory to the point where the buyer will be collecting his goods.

COSCO Shipping

COSCO Shipping

As soon as the cargo has been delivered to the buyer, all responsibility ceases to be on the seller.

In case of further transportation to other destinations, the buyer will have to carter for the expenses.

It is important to note that the buyer will also be responsible for the cost of off-loading the cargo from the ship and any other cost that will be incurred depending on the rules of the destined port.

Having said that, let me take you back to the basics.

I know if you are importing from China for the first time, the term Incoterm can be somehow challenging.

Let me break it down for you.

What are Incoterms?

Incoterms basically refers to the International Commercial Terms.

Now, Incoterms are pre-defined commercial terms that relate to international commercial law.

It the International Chamber of Commerce that published the Incoterms.

As I had mentioned earlier, that are many Incoterms (about 11 Incoterms).

Through these Incoterms, importers and exporters know when the tasks, responsibilities, risks or costs shift from one party to another.

However, for the scope of this guide, I will focus on the CFR.

With that brief background information about Incoterms, let’s come back to the main subject of this article.

Breaking Down CFR

Shipment of goods through international waters or sometimes inland waterways usually dictates a number of terms.

The terms involved in conducting this kind of transport ranges from:

  • Payment
  • Place and time of delivery
  • Conditions under which the risks involved shifts between the seller and the buyer
  • Cost of insurance among other things.

It is important to note that CFR is strictly involved in transport of goods and does not meddle in any other form of transaction other than transport.

Examples of the Related Commercial Terms

Apart from CFR, there are three other terms that are being used in international shipping and inland water transport of goods.

  • Free alongside shipmeans the responsibility of the seller ends when he/she delivers the goods to the port alongside the vessel that is supposed to transport it. At this point the buyer takes responsibility of loading it up into the ship and transporting it all the way to the destination port.
  • Free on Board – means that the person selling the goods will have to go a step further to make sure that the goods are loaded onto the ship.
  • Cost Insurance and Freightis quite similar to CFR. Here, the seller is forced to insure the goods he/she is selling all the way from the source to the port where it was expected to reach.

CFR Calculation

The cost of shipping goods from one port to another is often calculated using the formulas below.

Please note that the formulas are used in the calculation of Cost and Freight.

In this case FOB has been introduced in the formula which will be explained below.

CFR Price = FOB Price + Shipping

CFR Price = CIF Price X [1 – (1+ Insurance Premium) X Insurance Rate]

FOB: is an initial that is mostly used in the shipping industry which stands for “free on board” or “freight on board”.

It is in other words, a designation that is used as an indicator of the period when ownership and liability of goods ceases to be on the seller.

And thereafter, the buyer assumes full responsibility.

FOB

FOB

In case a physical address has been identified, its designation is the determinant of the party with the responsibility of payment for the freight charges.

Not forgetting the point where responsibility is passed from the seller to the buyer.

As an example in international shipping:

“FOB (name of originating port)”, means the consignor (seller) takes the responsibility of paying for the cost of transport to the loading point and the cost of loading.

The consignee (buyer) on the other end caters for the cost of:

  • Ocean freight
  • Unloading
  • Insurance
  • Further transport from the destination port

In this case the consignor passes all responsibility to the consignee once the goods are loaded on to the ship.

CIF Price: is an initial which stands for Cost, Insurance and Freight depending on the named port of destination.

In this case the seller assumes responsibility of paying the cost of freight and insurance all the way to the destination port.

CIF

CIF

It however gives the buyer the responsibility of all the risks that are involved once the goods are on the ship.

Analysis of the 1990 CFR

Here what you should know about the 1990 CFR rule:

As soon as the goods or the cargo goes through the ship’s rail at the port where it is being shipped from, the consignor completes the process of delivery.

At this point, the seller has already paid the cost of freight at sea to the port where it was destined to go.

The seller also incurs the cost of risks involved in case of any damages or loss of the goods at sea.

Loading containers

Loading containers

Apart from that, the seller also assumes responsibility for the cost of booking and chattering, normal cost of shipping to the destination point.

The other obligations assumed by buyer and the seller are explained below.

Essential Obligations of the Seller

  1. Takes full responsibility for the delivery of goods from the warehouse or factory to the port where the goods are to be loaded on to a ship.
  2. He/she takes care of the costs incurred during this kind of transaction making sure that the goods are loaded and ready for shipment.
  3. He/she does everything in accordance to the contract that was signed between him and the buyer taking note of the time and place after which the buyer is notified.
  4. Handles all the procedures leading to the export of the goods including all the export approvals and licenses from the country where the goods are coming from.
  5. Takes responsibility of booking and chattering and then making the relevant payments on the cost of freight all the way to the destination port.
  6. Caters for any costs that is incurred from the port of shipment including the cost of loading the cargo onto the ship.
  7. Provides all the commercial invoices and other shipping documents that will be required for the shipment of goods to the destination port.
  8. The parties involved which include the buyer and the seller, may opt for electronic communication. At this point all the relevant documents are replaced by equivalent information in electronic data.

Incoterms 2010

Incoterms 2010

CFR Considerations

A contract stipulated according to the CFR considerations is not complete unless the inclusions explained in the following paragraphs are agreed upon.

  1. The CFR terminologies has a section on shipping notification issues which requires very close attention. It requires the seller to do arrangements on transport as the buyer handles the insurance. This means that before the cargo is lifted into the ship, or before the buyer assumes all the responsibility, he has to make sure that the goods are insured as stipulated in the contract.

The seller is also expected to notify the buyer that the cargo is on board a particular ship with the relevant details or else the seller will be in breach of the stipulated contract.

  1. The cost of unloading the cargo from the ship is usually a variant in CFR terminology.
  2. The terms stipulated on the CFR considerations with regards to the liner terms state that the cost of offloading are usually handled by the conditions of the liner and are usually taken care of by the seller.
  3. CFR ex ship’s hold, is a phrase implying after the cargo has been transported all the way to the port where it was meant to go, the buyer will assume all the responsibility from that point. This includes the cost of offloading the goods from the ship, on to the bilge and then to the port.

There are however other conditions that are stipulated on the CFR which should not be a real issue as they seek to clarify more on the matter of unloading fees.

  1. CFR ex tackle, refers to the cost that the buyer has to incur when the goods have been delivered to the port, offloaded from the bilge and to the terminal.

The additional information on the same is just for clarification and does not influence the meaning of the stipulated rules and conditions.

  1. CFR landed, refers to the idea that the seller will have to pay for the cost of offloading the cargo from the ship on to the port where it was destined for.

NYK Line

NYK Line

2000 CFR Analysis

General principals stipulated in the 2000 CFR, clearly stipulates that the CFR terminologies are allowed to be used only on inland waters navigation and in shipping.

In case the parties that have a particular contract are not interested in using any form of delivery over the rail of the ship, CPT terminologies kick in.

They will be used in these circumstances.

The interpretation of the 2000 CFR by the International Chamber of Commerce states that the obligations of the seller and the buyer are stated and divided as explained below.

Obligations of the Seller

  1. The seller is expected to obtain license and other official documents that will be used in the export of the cargo at his own risk and expense.

They are also to be available in handling all the formalities required for the export of goods in case they are required to do so.

  1. He is expected to read and understand all the terms stipulated on a contract that will be used as the agreement form allowing the goods to be transported from one port to another.

He will therefore sign the contract then makes sure that the goods are loaded at the time and place written on the contract.

After that, he is expected to inform the buyer that the cargo is on-board and will be ready for shipment after paying all the charges.

  1. In this contract, the buyer is excused of any form of responsibility on the risks that the goods face as it crosses the rail onto the ship.
  2. Provision of the usual documents of transportation is done by the seller. In case both parties agree on electronic form of communication, all the relevant documents are usually replaced by electronic data interchange EDI. The system is as effective as the physical documents.

Incoterm for International Trade

Incoterm for International Trade

Differences and Links between CFR and EXW, FOB and CIF

 

Foreign Trade Quotation Method

Trading Locations

Transport

Insurance

Export Formalities

Import Formalities

Risk Transfer

Transfer of ownership

CFR

Cost plus FreightPort of ShipmentSeller ResponsibleBuyer ResponsibleSeller ResponsibleBuyer ResponsiblePort of shipmentTransfer with the delivery

EXW

Factory Delivery PriceExporting Country, Warehouse or FactoryBuyer ResponsibleBuyer ResponsibleBuyer ResponsibleBuyer ResponsiblePlace of DeliveryTransfer with sale

FOB

FOBPort of ShipmentBuyer responsibleBuyer ResponsibleSeller responsibleBuyer ResponsiblePort of ShipmentTransfer with the delivery

CIF

CIF PricePort of ShipmentSeller responsibleSeller ResponsibleSeller ResponsibleBuyer ResponsiblePort of ShipmentTransfer with the delivery

The points that are very common in CFR, CIF and FOB are often seen in three types of foreign trade quotations as explained below:

  1. Loading the goods and informing the buyer of the progress is the responsibility of the seller while the buyer has the responsibility of receiving goods sent to him.
  2. Export formalities plus all the documents involved are supposed to be handled by the seller while on the other hand the buyer should be ready to handle all the formalities of importing the goods with all the relevant documents.
  3. The bills incurred in export are to be paid by the seller while the bills incurred by imports are to be received and paid by the buyer.
  4. Delivery of goods at the port where they are to be loaded for shipment, the risks and cost involved are taken care of on the ships side.
  5. Other deliveries of the same nature include the delivery of vouchers and subsequent voucher payments.
  6. They are all bound and restricted to inland water transport and international or marine water transportation.

Once you identify the supplier or goods you want to buy, BanSar will handle everything for you.

Who Pays Freight in CFR Shipping?

It is the seller’s responsibility to cater for freight charges in CFR.

In principle, CFR incoterms stipulate that the seller is responsible for transporting goods to the required buyer’s destination.

Additionally, the seller under CFR needs to provide the buyer with all the necessary documentation for picking up the shipment from the carrier.

Under CFR, the shipping party has a greater amount of responsibility when it comes to organizing and paying for shipment transportation.

While at it, the seller stays liable for inland transit from the warehouse to the port of origin and port of destination.

The freight cost in CFR is therefore fully borne by the seller.

Does CFR Include Duty when Shipping from China?

Yes.

Under CFR, customs duty is inclusive, which is borne by the buyer.

Immediately after the seller drops the shipment at the respective designated port of destination, unloading rests with the buyer.

Therefore, it becomes the buyer’s responsibility to cater for all import duties and taxes at the port of destination.

Additionally, the buyer will still be liable for local and depot charges where applicable.

Incoterms 2020

Incoterms

Who handles Duty and Customs Clearance in CFR Shipping?

Seller.

CFR terms dictate that the seller is responsible for export customs proceedings.

They manage all relevant documents needed for export such as commercial invoice, packing list, and bill of lading among others

Moreover, the seller is in charge of making payments such as terminal and freight forwarding fees.

After carrying out all the customs clearance procedures, the sellers ensure they hand over the documents to the buyer.

This makes it easy for the buyer to carry out the ensuing freight proceedings.

Is there difference between Incoterms 2020 Incoterms 2010?

Yes.

Ideally, Incoterms 2020 is a revised version of Incoterms 2010.

In principle, Incoterms 2020 text tends to have a relatively different layout and style of presentation.

The sequencing and presentation of the rules are a bit different in Incoterms 2020.

Nevertheless, the Incoterms are still 11 rules in both the 2010 and 2020 versions.

Some of the notable difference in these two versions, however, include the following;

a) The DAT Incoterm, Delivered At Terminal,has been renamed in Incoterm 2020 and now referred to as DPU, Delivered at Place Unloaded.

In essence, the name changes are necessitated by the fact that delivery of shipments can take place at any given point.

Technically, delivery of goods is not restricted only at a transport terminal.

As with DAT, this is the only regulation, which requires the seller to unload the cargo at their destination.

b) Incoterms 2020 attempts to assist the seller whenever the FCA rule is used together with a letter of credit.

Both parties can agree that the buyer should direct the carrier to give the seller documents such as a bill of lading or letter of credit.

Ideally, this acts as a stop-gap solution preventing financial institutions from insisting on getting an on-board bill of lading for containers.

It also does little to reduce the underlying risks when the buyer is allowed to arrange for shipping.

c) Another difference is that Incoterm 2020, the rules now takes care of the situation where either party transports cargo using their vehicles without engaging services of a third party.

d) Incoterm 2020 also describes in detail the allocation of costs arising from security-related obligations.

e) In terms of freight insurance, for CIP rule, the level of cover needed is institute cargo clauses. Incoterm 2020 describes a higher level of cargo than specified in Incoterm 2010. The level of cargo cover in incoterm 2010 is Institute Cargo Clause.

Essentially, the reasoning, in this case, is that CIF is quite popular with goods transactions where the lower level of cover is largely accepted.

How does CPT compare to CFR?

CPT Incoterm

CPT Incoterm

Ideally, CPT is an Incoterm abbreviation for Carriage Paid To.

It’s an international trade term stipulating the seller must supply commodities to a carrier or any individual nominated by the seller at their expense.

Under CPT, the seller is liable for all risks, including failure before the goods are in the chosen party’s care.

A carrier under CPT can be an individual or entity responsible for shipping the goods by sea, road, or air.

Alternatively, it could be a person or entity who chose to procure the carriage’s output. In most instances, the CPT tend to include Terminal Handling Charges (THC).

CPT is an international commercial concept denoting the seller is liable for the risks and costs associated with shipping goods to a carrier to an agreed destination.

Where multiple carriers are involved under CPT, risks and expenses are passed to the buyer once delivery to the first carrier is accomplished.

Expenses under CPT include taxation and export duties

The buyer under CPT is at liberty to opt for a Carriage and Insurance Paid To (CIP) agreement as an alternative. In this case, the vendor also insures the shipment during transit.

On the other hand, CFR is an acronym for Cost and Freight.

Essentially, this Incoterm stipulates that a complete sale is a cost and freight.

Therefore, the seller is responsible for arranging transportation of cargo by sea to the respective port of destination.

Under this Incoterm, the seller is not responsible for acquiring insurance againstdamage or loss of cargo when in transit.

The seller and buyer may agree to include cost and freight in the agreement.

 In this case, CFR ensures the seller is not responsible for providing insurance of loss or damage for load during shipment.

What does CFR state Regarding Cost for Cargo Security?

In the recent past, cargo security has become an integral element in the shipping industry.

Incoterms 2020 edition analyzes the obligations by reference to activities related to the overall export clearance process.

Practically, the most relevant security framework, usually the International Ship and Port Security (ISPS) code.

Thus, cargo security under CFR lies with the respective designated parties involved in the shipping process.

Carriers will often levy a small charge for ISPS, which, of course, will be borne by the seller.

Can you use CFR for Containerized Cargo?

Not really.

CFR is unsuitable for containerized cargo.

Essentially, the risk transfer point of CFR incoterm tends to be a bit different from cost transfer point.

Thus with CFR, risk is transferred when the shipment is loaded onboard the vessel at origin.

In principle, it should only be used when the vendor or supplier has direct access to the vessel.

For instance, it could be a vessel like bulk cargo shipping when commodities are loaded directly onto the vessel rather than dropped off at container terminal before loading.

Who Controls Rules in CFR Shipping?

The International Chamber of Commerce is the agency responsible for controlling all the rules and regulations in CFR shipping.

ICC is headquartered in Paris, France, but all the Incoterms are adhered to by all the major trading countries in the world.

This body is also responsible for revising the rules after every 10 years, with most recent version being Incoterms 2020.

Ostensibly, all the rules in CFR shipping are recognized by courts and different authorities globally.

Under CFR, the buyer and seller have a specific set of responsibilities guiding implementation of this incoterm.

Both parties can modify according to their convenience provided for them to agree to it.

Is CFR suitable for Letters of Credit?

Yes.

Essentially, delivery under CFR Incoterms takes place before main carriage.

Letters of Credit are mainly used as bank guarantees for payment of the respective shipment to the seller.

Therefore, the carrier provides the seller with relevant shipping documents. This document often serves as a mechanism for control of the commodities.

The document can be presented to the financial institution under a letter of credit and passed to the buyer for goods to be claimed.

You can thus use CFR as an ideal incoterm with a letter of credit where there is a need.

Can you use CFR in Airfreight?

Not at all.

According to the International Chamber of Commerce,the CFR terms are strictly designed for sea and ocean transit.

All CFR terms are designed to take care of consignments sent via ocean only and does not consider any airfreight related factor.

The responsibilities of both the seller and buyer in CFR shipping are pegged on sea transit.

Therefore, you can never use CFR in Airfreight.

How does Risk Transfer in CFR Shipping Work?

Under CFR terms, it is the responsibility of the seller to contract carriage.

However, the seller does not assume the risk of loss or damage to the cargo.

Similarly, the vendor is hardly liable for additional charges arising from events occurring after shipment or dispatch.

Ideally, risk transfer in CFR shipping is effected to the buyer immediately after export clearance.

In other words, risk in CFR shipping is transferred to the buyer once the shipment is loaded on board.

This happens before the main carriage takes place.

Once the risks are transferred from the seller to buyer, the seller will never be liable for damage or loss to the shipment.

Moreover, the seller does not cater for cost of marine insurance hence is not obliged to any unfortunate event of the shipment.

However, related costs are always on the seller until the moment of import clearance at a specified destination.

How does CFR compare to Ex Works?

CFR and Ex-Works are some of the commonly used incoterms in the shipping world.

These two incoterms, however, compare in different ways.

Under CFR, the vendor must take care of cost and freight necessary to ship the cargo to a specified destination.

But the risk of loss or damage to the goods and additional costs occurring after goods delivery is transferred to the seller.

This happens once the goods pass ship’s rail in port of origin.

On the other hand, Ex-works incoterms stipulate that the seller must deliver goods at his premises.

While at it,the buyer arranges how to pick and transport the shipment to their respective destination.

Under Ex-Works, the buyer carries all the risks and costs of logistics operations once the goods are delivered.

Moreover, CFR terms require the seller to clear goods for export.

Significantly, CFR is only applicable for ocean and inland waterway transport.

CFR terms are favorable for the buyer since the seller takes up significant responsibilities hence reducing cost.

However, Ex-Works terms tend to favor the seller since the buyer takes the burden and related risks after delivery.

Technically, the seller is relieved from any kind of liability after making the goods available for collection at his premises.

Should you Indicate Date of Delivery at Destination when using CFR Shipping Term?

No.

It is not advisable for either party involved in CFR shipping to stipulate date of delivery at destination.

Ideally, this kind of stipulation often defeats the object of CFR terms. In essence, it creates a loophole for varied interpretations of the contract.

In case the shipment fails to reach the specified date, several contractual issues are bound to arise.

Of course, ocean freight can be unpredictable due to unprecedented delays such as bad weather on transit.

This can lead to unnecessary misunderstandings such as violation of the contract obligations.

Therefore, when using CFR incoterms, avoid indicating date of delivery at destination.

How do you Determine the Cost of CFR Shipping?

In calculating the price of CFR, several elements must be taken into consideration.

For instance, the price of commodities, customs fees, insurance charges, duties and taxes, freight, verification, labor, documentation, etc.

As a seller offering CFR terms, you must figure out all these factors when determining the ideal cost of CFR.

Once you figure out charges for the respective elements, it becomes easy to know an approximate figure to quote.

Nevertheless, the vendor under CFR hardly charges the buyer for shipping costs.

But it would be vital to consider it while arriving at the ultimate cost of CFR shipping.

Once you factor in all these elements, it becomes easy to provide a rough estimate on your quote.

Conclusion

Like other Incoterms, CFR also plays a fundamental in international trade.

And, at this point, I am sure you can explain everything about CFR shipping terms.

But more importantly, you should evaluate all options available at your disposal to choose an appropriate Incoterm.

Now, it’s your turn.

Are you importing goods from China?

Or, you want to learn more about Incoterms.

Well, talk to us today – we will make your shipping simple and easy.

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