It states that the seller is not only responsible for delivering the goods to the port specified by the buyer, but also bears the transportation costs of the goods to the destination port.
CFR is nearly identical to CIF, the only difference is that insurance is mandatory under CIF and must be provided by the seller. With CFR, however, insurance is optional.
Common practice dictates that CFR should be chosen over CIF if the buyer is able to acquire better or more affordable insurance and vice versa.
Even though Incoterms laws do not mandate for cargo insurance to be provided under CFR, it is recommended for international ocean freight shipments to be shipped insured.
The shipments may be covered entirely by one single policy obtained by the buyer or seller, or by two separate insurance policies taken out by both the buyer and seller to cover their respective responsibilities.
Make sure that insurance terms and conditions are clearly defined and specified when negotiating your sales contract.
Unlike many of the other Incoterms, the risk transfer point of the CFR Incoterm differs from the cost transfer point. With CFR, risk is transferred when the goods are loaded on board the shipping vessel at origin.
It should only be used in situations where the seller has direct access to the vessel such as bulk cargo shipping when goods are loaded directly onto the vessel instead of dropped off in a container at a terminal prior to loading. As such, the CFR Incoterm is not suitable for containerized cargo.
"An Incoterms is one of the most important aspects in business negotiations as it lays out the responsibilities of the buyer and seller"
Klaus Lydsal, vice president of operations at iContainers