CFR (Cost and Freight) is one of the 11 Incoterms® 2020 rules defined by the International Chamber of Commerce. It is used only for sea and inland waterway transport. Under CFR, the seller (exporter) pays for the transportation of the goods to the named port of destination, but the risk transfers to the buyer as soon as the goods are loaded on board the vessel.
Seller’s Responsibility
If you sell an excavator CFR Bremerhaven, your job is to:
- Get the machine out of your yard.
- Truck it to the US port (e.g., Savannah).
- Clear US export customs.
- Pay the ocean freight charges to the shipping line. Crucially, you choose the ship. Since you are paying the freight, you control the routing. This allows you to consolidate shipments or negotiate volume deals with carriers.
Buyer’s Responsibility (and Risk)
This is the most misunderstood part of CFR. Even though the seller pays for the ship to cross the ocean, the buyer holds the risk during that crossing.
- Scenario: You sell a crane CFR. The ship hits a storm in the Atlantic, and the crane washes overboard.
- Result: The buyer still owes you the money (or their insurance does). You fulfilled your duty when the crane hit the deck of the ship in Savannah. Because the risk transfers early, the buyer is responsible for purchasing Cargo Insurance. The seller has no obligation to insure the goods (unlike in CIF – Cost, Insurance, and Freight).
CFR in Heavy Equipment Logistics
CFR is extremely common in the RoRo (Roll-on/Roll-off) machinery trade.
- Unloading costs: Under CFR, the seller pays to get the goods to the port, but usually, the cost of unloading at the destination is for the buyer’s account. However, different shipping lines have different Liner Terms. Some freight rates include unloading (Liner Out), some don’t (Free Out).
- Trap: If your freight contract is Free Out, the crane at the destination port will not lift your breakbulk cargo off the ship until someone pays the stevedores. If this isn’t clarified, your machine sits on the vessel, and the buyer gets angry. Always clarify: CFR (Liner Terms) vs CFR (Free Out).