An Incoterms® rule, applicable only to ocean or waterway transport, under which the seller pays the costs to export and ship the freight to the named port of destination. The purchaser takes on risk of loss once the goods are on board the vessel but is generally responsible for charges only once the goods arrive at the named port of destination, subject to certain provisions of the carriage contract (i.e. the risk transfer point differs from the cost transfer point). The contract of sale should very clearly specify not just the named port of destination, but the actual precise point at or within the named port of destination where transfer of cost will occur.
If a buyer and seller agree to include CFR in their contract of sale, the seller must pay for and arrange delivery of the goods to the port of shipment, clear them for export, load them onto the transport vessel, and pay ocean freight. The bill of lading usually will indicate "freight prepaid".
Even though the seller is responsible for arranging and paying for the shipment of the goods, cargo insurance is not mandated under CFR (therefore, if the goods are lost or damaged in shipping and no insurance has been purchased by the buyer, the buyer bears risk of loss above the carrier’s liability limit).
CFR may be useful when transporting bulk cargo, oversized or overweight cargo that will not fit into a standard container, or cargo that exceeds weight limitations of containers.
When an Incoterms® rule is included in a contract of sale, it creates legal obligations for the buyer and seller, which can have costly implications. Therefore, it is important that traders read and understand the precise wording of the Incoterms® rules carefully and choose the rule to include in their sale contract thoughtfully. For additional information and resources on the Incoterms® rules, and to purchase the full text of the Incoterms® 2020 rules, visit the ICC website.
Learn more about the eleven existing Incoterms® rules and what they mean for your shipping business.
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