Why does CFR matter?
CFR clarifies cost and risk allocation in international sea trade—both parties know exactly who pays for what and who bears the risk of loss or damage. This clarity prevents disputes and enables businesses to accurately calculate landed costs. For sellers, CFR is attractive because they control freight costs and delivery to port. For buyers, CFR requires purchasing insurance, adding cost, but provides cost predictability.
How does CFR (Cost and Freight) work in logistics?
A buyer in one country purchases goods from a seller in another country under CFR terms. The seller arranges and pays for sea freight to the destination port. Once goods are loaded onto the vessel (risk transfers), the buyer becomes responsible for insurance and any loss or damage. The seller provides the bill of lading and delivery documentation to the buyer. The buyer arranges insurance and receives goods at the destination port, where they pay the freight invoice and assume full responsibility.
CFR vs. other sea freight incoterms
- FOB (Free on Board) – Seller pays freight to loading port; buyer pays freight from there
- CIF (Cost, Insurance and Freight) – Like CFR but seller also purchases insurance; buyer still assumes risk once loaded
- CFR (Cost and Freight) – Seller pays all freight; buyer purchases insurance and assumes risk once loaded
- CIP (Carriage and Insurance Paid To) – Seller pays freight and insurance to destination (not just port)
Example in practice
A textile manufacturer in Shanghai, China sells €100,000 of fabric to a retailer in Rotterdam, Netherlands under CFR terms. The Shanghai manufacturer arranges sea freight and pays the shipping cost (€3,000) to deliver containers to Rotterdam port. Once the containers are loaded onto the vessel in Shanghai, risk transfers to the Rotterdam buyer. The buyer arranges cargo insurance (€600) for the voyage. The vessel sails 30 days to Rotterdam. If a storm damages cargo during transit, the buyer’s insurance covers the loss, not the seller. At Rotterdam port, the buyer receives the containers and pays the €3,000 freight invoice to the shipping line. Total cost to buyer: €100,000 (goods) + €3,000 (freight) + €600 (insurance) = €103,600.