Created by the International Chamber of Commerce, Incoterms are a series of three-letter designations that define responsibilities between buyers and sellers around the sale of goods, specifically related to transportation costs and liability. If you’re looking for more information on Incoterms, check out our other articles on this topic:
The Complete Guide to All 11 of the 2010 Incoterms Rules
Incoterms 2020 Rules: Everything You Need to Know
Protect Your Bottom Line by Understanding These 5 Common Incoterms
When you’re buying or selling goods, knowing your Incoterms® means that both parties to your contract will be speaking the same language—at least when it comes to transportation costs. Incoterms act as a handy shorthand to define who pays for what when moving goods to the buyer’s final destination.
Below, we’ll walk you through the CFR Incoterm.
What Does CFR Mean?
CFR stands for Cost and Freight. Along with FAS, FOB, and CIF, it’s one of four Incoterms that applies only to goods that move via sea and inland waterway.
Under the CFR Incoterm, the seller pays for all the costs up to and including the ocean freight to a destination port of the buyer’s choosing. In other words, if the contract says “CFR Port of Los Angeles,” that means that the seller will pay for all costs to get the goods onboard a vessel and to the Port of Los Angeles.
Once the vessel arrives at the port, the buyer is responsible for any expenses to move the goods to their final destination.
What Is the Seller Responsible for Under the CFR Incoterm?
Under a contract using the CFR Incoterm, the seller is required to pay for all the costs to get goods from their origin point to a destination port of the buyer’s choosing. That includes expenses related to transporting the shipment to the origin port, clearing any export procedures, getting it loaded on a vessel, and carriage via ocean freight to the destination port.
What Is the Buyer Responsible for Under the CFR Incoterm?
Once the shipment arrives at the destination port, the buyer is responsible for any costs going forward. Unloading at the port and carriage to the final destination will both be arranged for and paid by the buyer.
Incoterms Insights: CFR
Like FAS and FOB, CFR does not specify which party will pay for insurance. Additionally, like FOB, under the CFR Incoterm, the risk transfers from the seller to the buyer once the cargo is loaded onto the ship at the origin port. To protect against any potential losses while the ship is in transit, buyers may want to consider marine cargo insurance.
Talk to a freight forwarder. If you need some advice in regards to insurance—or help arranging any of the transportation under the CFR Incoterm—a forwarder can be a valuable partner in this process.
If you’re considering a contract with the CFR Incoterm, talk to one of our experts. In addition to helping you with freight solutions, a forwarder can also help you estimate costs so you have an accurate gauge for your profit margins.
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