CFR (Cost and Freight): Seller Pays Freight, Buyer Takes Risk

CFR Cost and Freight, Incoterms 2020: the seller pays sea freight but risk passes on board at origin. Costs table, bill of lading, bulk example, CFR vs CIF.

CFR, Cost and Freight, is the maritime rule of Incoterms® 2020 in which the seller pays the sea freight to the destination port but stops bearing the risk much earlier, as soon as the goods are on board at the port of shipment. The seller clears the goods for export, books and pays the vessel, loads the goods and hands the buyer the transport document. The buyer bears the risk throughout the voyage, insures it if it wishes, unloads at destination and clears the goods for import.

Like every C rule, CFR has two critical points that are often confused. This lesson shows how to handle them, which documents you need and when CFR is the wrong choice.

When should you use CFR?

CFR is designed for sea and inland waterway transport, when the goods are loaded on board by or for the seller:

• bulk commodities such as fertilisers, cereals, sugar or clinker;
• break-bulk and project cargo;
• commodity trades where the bill of lading is traded during the voyage.

It also suits buyers who prefer to insure the cargo themselves, for example under an annual policy or because their country requires imports to be insured with a local insurer.

Do not use CFR for containers handed over at a terminal: the seller would keep the risk until loading, after losing control of the box. Use CPT instead, which follows the same logic for any mode.

Where does delivery happen and when does risk pass?

The seller delivers by placing the goods on board the vessel at the port of shipment, or by procuring goods already shipped in that way. Risk passes at that moment, even though the seller continues to pay for the voyage.

The term itself names only the port of destination, as in "CFR Paranaguá". The port of shipment is where risk passes, and the buyer's insurer will want to know it. Write it into the contract too: "CFR Paranaguá, loading at Arzew, Incoterms® 2020".

Who pays what under CFR?

The seller must contract for carriage on usual terms, by the usual route, in a vessel of the type normally used for the goods. If its freight contract includes discharge costs at destination, the seller pays them and cannot recover them from the buyer unless the contract says otherwise.

Documents and payment

The seller must provide, at its own cost, the usual transport document for the agreed port of destination, normally a bill of lading. It must cover the contract goods, be dated within the agreed shipment period, allow the buyer to claim the goods from the carrier at destination and, unless otherwise agreed, allow the buyer to sell the goods in transit by transferring the document. If it is issued in several originals, the full set must be presented.

CFR is a classic letter of credit rule: the credit calls for clean on-board bills of lading marked "freight prepaid", an invoice and other documents. The seller is paid as soon as it presents compliant documents after loading, well before the goods arrive. Laytime and demurrage at the discharge port are not covered by Incoterms: if the seller charters the ship, the sales contract should say who pays demurrage at destination.

Insurance under CFR

Neither party owes the other insurance. The buyer bears the voyage risk and should insure from the moment the goods are on board. The seller covers the period up to loading and must give the buyer, on request, the information it needs to insure.

Worked example: urea from Arzew to Brazil

An Algerian fertiliser producer sells 10,000 tonnes of granular urea in bulk, CFR Paranaguá, loading at Arzew, Incoterms® 2020, payment by letter of credit.

The total is USD 3,980,000. The vessel completes loading on 2 July 2026 and the seller emails the buyer the vessel name, quantity and bill of lading date the same day. The seller presents the bills of lading to the bank on 6 July and is paid. During the voyage, heavy weather lets seawater into a hold and 400 tonnes are damaged. The loss is the buyer's, since risk passed at Arzew. The buyer claims under its own cargo policy; the seller is not involved, except to supply documents if requested.

CFR compared with CIF, CPT and FOB

Add insurance to CFR and you get CIF. See the full grid in the Incoterms matrix.

Common mistakes with CFR

• Buyer leaves the voyage uninsured, assuming the seller who paid the freight bears the risk.
• Using CFR for containers or air freight, where CPT is the correct rule.
• Not naming the port of shipment, which leaves the buyer's insurer unsure where cover starts.
• Writing "C&F" or "CNF" without "Incoterms® 2020", so the term may be read under local practice.
• No clause on discharge costs and demurrage at the destination port.