CFR
Also known as: Cost and Freight, C&F
CFR, Cost and Freight, means the seller pays the sea freight to the port of destination, but the risk already passes once the goods are on board at the port of shipment. CFR applies only to sea and inland waterway.
Who arranges what under CFR?
The seller concludes the sea carriage contract to the named port of destination, pays the freight and files the export declaration. The buyer handles import and pays duties and VAT. The seller chooses the line and keeps control of the booking; the buyer bears from on board the risk of a voyage they did not book themselves. Insuring is not mandatory under CFR. Anyone who wants cover uses CIF. Leave CFR uninsured and the buyer stands exposed to damage at sea without a policy and without the contract of carriage in their name. Claiming against the line is then harder, because they are not the contracting party. CFR applies only to sea and inland waterway. For containers, air and multimodal CPT is the counterpart: the same idea (seller pays to the destination, risk at the first handover), but with a risk point that fits a container. C&F is the same term in an older spelling, officially CFR since Incoterms 1990.
Where does the risk pass under CFR?
Once the goods are on board at the port of shipment, so at the start of the voyage the seller pays for. Cost and risk pass at different places here. That is the same split as under CPT, CIP and CIF, and it is the point where CFR is most often misread. If the ship is lost, the damage is the buyer's while the seller has already paid the freight. That is why CIF is used more often in practice: the same cost split, with a policy on top. The policy does not move the risk point, it only covers the consequence. Name the port of destination in the Incoterm, because that is how far the freight has been paid. You name the risk point separately, or you make it explicit in the contract: risk on board at the port of shipment, freight to [port of destination]. CFR Rotterdam alone says where payment runs to, not where the risk passed.
What does CFR mean for the customs value?
The CFR price contains the sea freight to the port of destination. If that port lies in the EU, the freight to the external border is already in the price and nothing has to be added. Insurance is not in it; if the buyer has their own policy to the EU border, that premium does count in the customs value. Costs after arrival at the EU port, such as unloading and inland transport, may come off if they can be shown separately. Without a specification on the invoice Customs will not accept that deduction. On liner trades unloading costs are often already built into the sea freight; on bulk and charters they are not. That difference must appear from the contract. On the import declaration the named place is the port of destination, in the country of import. That differs from the risk point, which lies at the port of shipment. The declaration follows the contract, not the risk. CFR Rotterdam on a shipment from Shanghai is an EU place, with a possible deduction of costs after entry.
What do you watch under CFR?
Name the port of destination, because that is the place to which the freight has been paid. The risk point does not lie there: it lies on board at the port of shipment. Anyone who confuses those two thinks the seller bears risk to Rotterdam, and discovers at a loss that that is not so. Also agree who bears the unloading costs at the port of destination. Those are often already built into the sea freight on liner trades, but not on bulk and charters. If nothing is said, the bill lands with the buyer while they thought the seller paid to the destination. Also agree who insures. Under CFR nobody is obliged, and a loss at sea without a policy is for the buyer. CIP and CIF close that gap. DAP shifts the risk all the way to arrival. CFR without that extra agreement is a term with a gap that only becomes visible when the ship does not arrive somewhere.
Why do parties still choose CFR?
CFR is attractive for a seller with good freight rates who wants to keep control of the booking, for example because they set the loading plan themselves. The buyer gets a price including freight without having to book. On commodity flows that is the standard: the seller knows the lines, the buyer knows the cargo. The other side is the gap between cost and risk. If something goes wrong on the way, the buyer is out the loss while they did not choose the carrier and the contract of carriage is not in their name. That makes recovering from the line harder. Anyone who wants to close that gap uses CIF and lets the seller arrange the insurance. CFR also stays in circulation because C&F sits in old contracts and price lists. That is the same term. Replace the spelling with CFR and add Incoterms 2020, so nobody reads an edition from before 2010 back in, when the risk point was still the ship's rail.
How does CFR appear on the import declaration?
On the import declaration you enter CFR as the delivery term, with the port of destination. That port lies in the country of import if you declare in the EU. Customs reads from that that the invoice price already contains the sea freight to that port, and that only costs after entry may come off if they appear separately. You must add insurance if the buyer has taken that out themselves to the EU border. Forget that premium and the value is too low. Unloading and inland carriage may be deducted if they sat in the CFR price and appear separately, which on liner trades is sometimes so and on a voyage charter rarely. CFR is not CIF. On the declaration the difference is the insurance. A CIF invoice under a CFR code, or the other way around, puts the premium on the wrong side of the sum. The three-letter code on invoice and declaration must match, and the build-up must show the freight (and under CIF the premium).
Which documents and pitfalls belong with CFR?
The seller supplies invoice, packing list, export declaration, the sea carriage contract or the booking, and the bill of lading. An insurance certificate does not belong with it. The buyer does the import and takes out a policy themselves if they want cover. The bill of lading is the proof that the goods are on board, and therefore that the risk has passed. The first pitfall is thinking the seller bears risk to the destination. The second is CFR for containers, where CPT puts the risk point better. The third is no agreement on unloading costs, so the buyer at arrival gets a bill they thought sat in the CFR price. Anyone who does not want the gap between freight and risk needs CIF (the same term plus minimum insurance) or DAP (risk to arrival). CFR is the term for anyone who wants the booking with the seller and consciously puts the transport risk on the buyer. Say that, otherwise the buyer reads the C as to the destination, in every respect.