Definition of the CFR Incoterm (Cost and Freight)

Quick Overview

The CFR Incoterm (Cost and Freight) applies exclusively to maritime or inland waterway transport and remains unchanged in Incoterms 2020. The seller bears costs up to the destination port, but risk transfers to the buyer once goods are loaded on board at origin. Unlike CIF, the seller is not obligated to provide insurance under CFR.

CFR explained in 30 seconds

See why the seller pays ocean freight to the destination port while cargo risk transfers to the buyer aboard the vessel at origin.

Seller's Obligations (CFR)

• Delivery of the goods and commercial documentation
• Proper packaging and preparation
• Inland transport in the country of origin
• Export customs clearance
• Port charges at origin
• Booking and payment of international sea freight up to the destination port

Buyer's Obligations (CFR)

• Payment for the goods as per the contract
• Pay destination unloading and handling charges that are not included for the seller’s account in the carriage contract, together with applicable buyer-side charges under the agreed rule.
• Import customs clearance
• Payment of duties, VAT, and other taxes
• Inland transport to the final destination

CFR Example: Freight Paid and Risk Transferred

Hypothetical example: a Spanish supplier sells breakbulk machinery CFR Port of Houston, United States, Incoterms® 2020.

The seller completes export clearance, delivers the machinery on board the vessel at the shipment port and pays the agreed freight to Houston. Normal risk transfers to the buyer when the machinery is on board at origin.

CFR does not require the seller to arrange cargo insurance. The buyer should consider coverage from the risk-transfer point.

Before booking, confirm whether destination unloading and handling are included in the seller’s carriage contract. Import clearance and applicable import duties and taxes remain the buyer’s responsibility.

Insurance under CFR Terms

Insurance is not mandatory under CFR. However, it is strongly recommended that the parties agree to insure the cargo during the transport. Common options include:

• The buyer contracts a comprehensive policy covering the journey from origin to final delivery
• Each party insures the leg of transport corresponding to their responsibility (up to or from the point of risk transfer)

In any case, it is advisable to clearly specify the insurance terms in the international sales contract to avoid conflicts in case of loss or damage.

CFR and Container Shipments

Containers are often handed to a carrier at a terminal before they are loaded onto the vessel. Under CFR, that terminal handover does not normally transfer risk: delivery and risk transfer occur on board at the shipment port.

This creates a mismatch between physical handover and contractual delivery. The seller normally retains risk before on-board delivery, although establishing when damage occurred can be difficult.

For container shipments where the seller pays carriage, consider CPT, or CIP if the seller also arranges insurance. FCA may suit shipments where the buyer arranges the main carriage.

CFR vs CIF — The Only Difference is who Pays for Insurance

Sources and References

• ICC – International Chamber of Commerce: Incoterms® 2020 Rules
  Official explanation of Incoterms® 2020, including CFR responsibilities and risk transfer points.
• International Trade Administration (USA): Know Your Incoterms
  U.S. government guide outlining key Incoterms, including CFR, and when to use them.
• Trade Finance Global: CFR – Cost and Freight (Incoterms® 2020)
  Comprehensive breakdown of the CFR Incoterm with examples and comparisons to CIF.
• IncoDocs: Incoterms® 2020 Explained – The Complete Guide
  Visual and detailed article explaining CFR’s cost structure, risk transfer, and limitations with containerized cargo.
• ICC Academy: Incoterms® 2020 – CIP or CIF? Understanding Risk
  Though focused on insurance terms, this article helps explain the difference in seller obligations, including when CFR is used.