I found that many novices are confused about the division of responsibilities, not knowing what the buyer and seller should bear, and not knowing how to explain it clearly to customers. So in this article, I will combine actual cases to deeply analyze the applicable scenarios, price calculation, risk transfer and differences between CFR terms and CIF and FOB . If you also often deal with shipping terms, this article will be a good helper for you to improve your professionalism!
What is CFR trade term?
**CFR（Cost and Freight）**CFR/CNF. COST AND FREIGHT, cost plus freight, is one of the common terms in international trade. It requires the seller to bear the transportation costs of transporting the goods to the destination port, but the risk of the goods is transferred to the buyer when the goods are loaded on board at the port of shipment. CFR is mainly applicable to sea and inland waterway transportation.
English explanation of CFR trade term
In the 2020 Incoterms, CFR is as:
- Cost : The cost of the goods borne by the seller.
- Freight : The shipping cost of the goods paid by the seller. It should be that CFR does not include insurance costs for the goods, which the buyer s to arrange on his own.
Scope of application of CFR provisions
CFR is usually applicable to sea and inland the role of the hr department in monitoring the quality of employee work waterway transport, and is particularly suitable for bulk commodities (such as ore, grain) or non-perishable goods.
The difference between CFR and other trade terms
The difference between CFR and CIF
- CFR : Insurance is not included since the privacy rule is of paramount importance and the buyer needs to purchase it.
- CIF : Includes minimum insurance, the seller is responsible for insurance.
Cost Differences Between CFR and CIF
- CFR : The seller is only responsible for shipping costs, excluding insurance, which is lower in cost.
- CIF : The seller needs to pay the lithuania phone number insurance premium. The overall cost is higher than CFR, but the buyer’s risk is lower.
The difference between CFR and FOB
- FOB (Free on Board) : The buyer bears the transportation costs of the goods from the port of shipment to the port of destination.
- CFR : The seller pays for transportation, but the risk passes to the buyer at the port of shipment.
Comparison of application scenarios between CFR and FOB
- CFR : Applicable when the seller has abundant logistics resources and the buyer needs to simplify transportation arrangements.
FOB : Suitable for situations where the buyer is in control of the shipping arrangements, especially when a specific logistics company is required.
Risk transfer under CFR trade terms
Under CFR terms, risk is transferred from the seller to the buyer when the goods are loaded on board the vessel. Even if the seller pays the shipping costs. The risk of loss or damage to the goods during transportation is borne by the buyer.
How is CFR price calculated?
CFR price formula : CFR price = cost of goods + domestic transportation fee + export customs clearance fee + ocean freight
- Cost of Goods : The basic production and preparation costs of the goods.
- Domestic transportation costs : the cost of transporting goods from the factory to the port.
- Export customs clearance fee : the fee charged by the seller for handling export formalities.
- Ocean freight : transportation cost from the port of shipment to the port of destination.
Actual Cases
A Chinese exporter sells electronic components worth $20,000 to an Indian buyer. The two parties agree on CFR terms and the goods need to be shipped to the Port of Mumbai:
Exporter Responsibilities :
- Arrange cargo transportation to Shanghai Port, China and handle export customs clearance.
- Pay the ocean freight from Shanghai Port to Mumbai Port.
Buyer’s Responsibilities :
- Once the goods arrive at the Port of Mumbai, you are responsible for customs clearance and payment of import duties.
- Purchase your own shipping insurance to cover shipping risks.
Advantages and disadvantages of CFR clauses
Advantages
- Simplify the seller’s logistics management : The seller is responsible for transportation to the destination port, which facilitates unified logistics arrangements.
- Suitable for bulk commodities : CFR is suitable for bulk commodities with lower transportation risks.
Disadvantages
- High buyer risk : Although the seller pays the freight, the transportation risk is still borne by the buyer.
- Insurance issue : CFR does not include insurance, and