In international trade, alongside FOB, the CFR (Cost and Freight) term is one of the most commonly used conditions in sea transportation. However, many businesses still misunderstand how costs and risks are allocated under CFR. The article below will help you clearly understand the nature of this term under Incoterms® 2020.
1. What is CFR Incoterms® 2020?
CFR (Cost and Freight) is a delivery term in which the seller is responsible for the cost of transporting goods to the port of destination, but the risk is transferred to the buyer once the goods are loaded on board the vessel at the port of shipment.
Key points to note:
• The seller pays the ocean freight
• The buyer bears the risk during transportation
CFR applies only to sea and inland waterway transport.
2. Risk Transfer Point in CFR
Similar to FOB, risk under CFR is transferred when the goods are loaded on board the vessel at the port of shipment, not at the destination port.
This creates a commonly misunderstood situation:
• The seller pays for transportation to the destination port
• But if the goods are damaged during the voyage, the buyer bears the risk
Therefore, understanding the risk transfer point is extremely important when using CFR.
3. Seller’s Responsibilities under CFR
The seller has greater obligations than under FOB because they must bear international freight costs. Specifically:
• Prepare goods in accordance with the contract
• Pack and label appropriately
• Complete export customs procedures
• Transport goods to the port of shipment
• Load goods onto the vessel
• Contract for carriage and pay freight to the destination port
• Provide transport documents (Bill of Lading)
The seller bears all costs up to the destination port but only bears risk until the goods are loaded on board.
4. Buyer’s Responsibilities under CFR
The buyer assumes responsibility once the goods are loaded on board the vessel, including:
• Bearing all risks during international transportation
• Purchasing cargo insurance (highly recommended under CFR)
• Completing import customs procedures
• Paying duties and charges at the destination port
• Receiving goods and transporting them to the warehouse
Although the buyer does not pay freight, they must proactively manage risk through insurance.
5. Difference Between CFR and FOB
| Criteria | FOB | CFR |
|---|---|---|
| International freight cost | Buyer pays | Seller pays |
| Risk transfer point | When goods are on board | When goods are on board |
| Party arranging transport | Buyer | Seller |
The main difference lies in transportation costs, while the risk transfer point remains the same.
6. Advantages and Disadvantages of CFR
Advantages:
• Buyer does not need to deal directly with shipping lines
• Suitable for businesses with limited international logistics experience
• Seller can leverage competitive freight rates
Disadvantages:
• Buyer bears risks throughout the voyage without controlling logistics
• Potential disputes if the risk transfer point is misunderstood
7. Important Notes When Using CFR
• Always clearly specify the port of shipment and port of destination in the contract
• Buyer should purchase cargo insurance to minimize risks
• Seller should choose reliable shipping lines and stable schedules
8. Our CFR Support Services
We provide comprehensive logistics solutions to help businesses effectively implement CFR terms:
• Consulting on suitable Incoterms for each type of cargo
• Negotiating and booking with shipping lines at competitive rates
• Fast and accurate export customs clearance
• Shipment tracking and real-time updates
• Full support with transport documentation according to international standards
• Partner network at destination ports for customs clearance and delivery
We help businesses optimize transportation costs while minimizing risks in import-export operations.
9. Conclusion
CFR is an Incoterms rule that reduces the buyer’s burden in arranging international transportation, but it comes with risk responsibility. Businesses must clearly understand the principle:
“Costs are borne by the seller – Risks are borne by the buyer.”
Partnering with a professional logistics provider will help you maximize the benefits of CFR while minimizing practical issues. If you need in-depth consultation or international freight quotations, contact us for detailed support.
CONTACT US FOR FREE CONSULTATION!
SONGWIN INTERNATIONAL LOGISTICS VIETNAM CO., LTD
📍 Address: 344 Nguyen Trong Tuyen, Tan Son Hoa Ward, Ho Chi Minh City
📞 Hotline (24/7): 083.681.3969 - 0373.262.105
📧 Email: Sales2@songwinlog.com
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