Glossary

CFR (Cost and Freight)

The trap with CFR is that cost and risk pass at different points: the seller covers freight to the destination port but does not bear the risk of damage in transit. CFR places no insurance obligation on the seller, so if the cargo is damaged en route the loss falls on the buyer.

CFR (Cost and Freight) is an Incoterms 2020 rule for sea and inland waterway transport only: the seller loads the goods onto the vessel at the port of shipment and pays the freight to the named destination port, but risk passes to the buyer the moment the goods are on board (the same point as FOB).

Where risk and cost transfer

The essence of CFR is that the two transfer points are deliberately separate:

  • Risk: passes to the buyer the moment the goods are loaded on board the vessel at the port of shipment. This is exactly the same point as FOB.
  • Cost: the seller pays the freight to bring the goods to the named destination port. The cost line moves at the destination port.
  • Insurance: CFR places no insurance obligation on either party. Because risk in transit is on the buyer, the buyer is the one who should usually arrange cover.
  • Unloading and import: unloading at the destination port (per contract) and import clearance are the buyer's responsibility.

When to use it

CFR fits non-containerised bulk or breakbulk sea shipments and cases where the seller has leverage on freight:

  • The seller knows the local freight market and can secure a good rate, bundling freight to make the quote look competitive.
  • The buyer knows the destination port but does not want to organise the main carriage.
  • The cargo is genuinely loaded into the ship's hold (classic bulk). For containerised cargo, where risk usually passes at the terminal or on handover to the carrier, CPT is the more correct choice than CFR.

Watch-outs and common mistakes

The costliest CFR mistakes come from missing the cost-versus-risk split:

  • The assumption "if the seller pays freight, the seller carries the risk" is wrong. If the cargo is damaged while on board, the loss is the buyer's, so the buyer should not go uninsured.
  • CFR carries no insurance. If cover is required, switch to CIF; writing "insurance included" on a CFR sale is contradictory.
  • CFR is the wrong term for containers. Use CPT/CIP for containerised sea freight; otherwise the risk-transfer point will not match the real operation.
  • Name the destination port precisely (e.g. CFR Port of Mersin) and state in the contract who bears unloading costs.
  • On L/C documents the Incoterm must match the proforma exactly; any mismatch triggers a discrepancy.

How it relates to Sighthem

In a Sighthem trade workflow, an Incoterm like CFR is set at the quoting stage and then carried through to the shipment documents:

  • The Incoterm is chosen on the proforma/quote, so it is clear from the start whether the price includes freight.
  • The bill of lading (B/L) that evidences the carriage contract, along with the other documents, is tracked in the shipment document set.
  • Terms such as destination port, freight and unloading responsibility stay consistent between quote and shipment, reducing the risk of document discrepancies when an L/C is involved.

Frequently Asked Questions

What is the difference between CFR and FOB?

In both, risk passes to the buyer at the same point (when the goods are loaded on board at the port of shipment). The difference is cost: under FOB the buyer pays and arranges the freight, while under CFR the seller pays freight to the destination port. So CFR = FOB plus seller-paid freight, with no change to where risk transfers.

What is the difference between CFR and CIF?

The only difference is insurance. Under CFR the seller has no insurance obligation; under CIF the seller must arrange minimum-cover (Institute Cargo Clauses C) marine insurance. The risk and cost transfer points are identical in both: risk on loading, cost at the destination port.

Who should arrange insurance under CFR?

CFR imposes no insurance obligation on either party. But because risk in transit sits with the buyer, the buyer is the one expected to arrange marine cargo insurance to protect itself. If the seller is to provide insurance, the term should be CIF.

Can CFR be used for container shipping?

It can be written, but it is not the right choice. CFR fixes risk transfer to loading on board the vessel, whereas with containers the goods usually leave the seller's control at the terminal or on handover to the carrier. For containerised sea freight, use CPT (or CIP for the insured version) so risk and cost align with the real operation.

Next step

Pick the right Incoterm on your quotes and proformas from the start, and track the bill of lading and documents in one shipment document set. Try Sighthem free for 14 days.

Full glossary · Export CRM · Try free for 14 days · See pricing