CFR Incoterms? Key Facts You Need to Know before Shipping

Every industry has different rules that ensure smooth running. And CFR incoterms is an example of such policies. But, CFR only relates to products shipped through the sea.

Under CFR, the seller must have immediate access to the ship. Likewise, the seller takes charge of all the steps before loading. For example, the seller organizes the transport of the goods to the final port.

But, most people don’t understand CFR. Also, others don’t differentiate between CIF and CFR abbreviations. Indeed, these approaches have a significant relationship but are independent in some aspects.

That’s why you should learn about CFR and how it affects your shipping activities. Besides, that’ll help avoid doubts and complaints when shipping.

What’s the Meaning of CFR Incoterms?

CFR incoterms are often known as cost and freight. Under this term, the seller bears the role of delivering the products to the port of origin. Thus, the seller pays transport costs to move the goods from his premises to the port of origin.

Further, the buyer carries all the risks immediately after loading. Afterward, the buyer pays transport costs from the destination port to his warehouse. Also, under the CFR term, insurance duty isn’t compulsory for the seller.

The CFR rule is famous among people in the shipping business. For example, if you’re importing products from China, you’ll likely use this policy.

What Are the Responsibilities for Sellers and Buyers Specified by CFR Incoterms?

The CFR incoterms rule defines different roles for sellers and buyers. Each seller and buyer complies by fulfilling their duties under the trade term. Below is a table showing various functions for both the seller and the buyer

Seller’s Role under CFR

· Responsible for product packing and wrapping

· Accounts for warehouse charges

· Bears document generation costs.

· Clears onboarding costs before moving to the assigned port

· Liable for storage costs involved in the terminal activities

Buyer’s Role under CFR

· They manage the payment of insurance.

· Buyer pays taxes.

· Responsible for offloading charges.

· Finances inland costs till the final destination.

· Pays fees for informing the seller about the shipping date and port.

What are the Advantages and Disadvantages of CFR Incoterms?

Advantages to the Seller

1. CFR allows you to control the selling price. For example, you can include loading and transport costs into the selling price.

2. The seller doesn’t carry any risks when transporting goods to the destination port. So, the buyer handles the insurance of his products

Seller’s Disadvantages

1. The seller incurs cargo charges before the buyer makes the payment. Thus, you’ll have to dig into your pocket to pay for the freight charges.

Disadvantages to the Buyer

1. The buyer carries all the risks immediately upon loading. That way, you’ll be responsible for any loss after loading.

Advantages to the Buyer

1. Buyers don’t incur costs for warehouse storage before shipping. Hence, the seller pays for the warehouse holding fees.
2. The buyer doesn’t have to plan the transport of goods to the destination port. Thus, you only handle transport charges from the destination port to your premises.

What are the Changes under CFR 2020?

Over the years, there’s been a series of updates on CFR incoterms. The latest changes include those made in the year 2020. Despite the updates, much hasn’t changed in the working of CFR.

Here Are the Changes under CFR 2020

1. A Change of Terms

“Alongside the vessel” is now known as “on board.” The change settles confusion regarding the type of goods transported depending on the condition.

2. Transfer of Risk

The buyer bears all the risks relating to the loss or damage of the goods.

3. Dismantling Expenses

In CFR 2020, both the buyer and seller must decide who carries the dismantling costs.

4. Inclusion of the term “Freight Prepaid.”

Under “Freight Prepaid,” the seller needs to oversee the payment of transport costs and the management of goods before shipping.

Should Freight Charges be added to the Initial Price under CFR?

Adding Freight charges to the initial price under CFR is allowed. That’s because the seller is responsible for transporting goods from his premises to the port of origin.

Furthermore, the seller needs to inform the buyer of the total carriage breakdown. That way, the buyer can make calculations and know the amount payable for the goods. But, if the seller fails to include the carriage expenses, the policy changes to FOB.

Therefore, FOB doesn’t require the seller to include carriage charges from his premises to the port of origin.

What are the Differences between CFR and CIF?

The CIF incoterms meaning comes from Cost, Insurance, and Freight. Likewise to CFR, CIF only caters to goods transported through the sea. Further, the seller pays for transporting goods from his country to the destination port.

Moreover, buyers carry risks once the goods arrive at the destination port. Upon delivery at the destination port, the buyer assumes all responsibility. For example, he handles the transport costs to his warehouse. The only difference is that sellers under CIF pay for marine insurance.

Thus, the policy protects the buyer from various risks. For example, it protects against fires, collisions, and even sinking.

Seller Roles under CIF Contract

• Handles insurance costs till the buyer’s station
• Bears any damage to the products before loading
• Incurs packaging and wrapping costs
• Ensures the assessment of goods
• Pays taxes included in the export process
• Seller handles loading costs at the port of origin

Buyer Roles under CIF Contract

• Accepts and grants the receipt of goods
• Handles risks that occur after dispatch to the destination port
• Incurs the costs for offloading at the destination port
• Pays for inland transportation costs to their location
• Covers import taxes and duties

Over to You

Shipping becomes reliable when you know the terms and conditions. So, there’s a need to know CFR incoterms before choosing the best trading company. That’ll help you understand your responsibilities as the buyer or the seller. Moreover, you’ll realize the limitations too.

After reading this article, you’ll understand CFR and how it relates to other incoterms. Further, you’ll be able to identify the differences and the similarities. We hope this article answers your questions and clears your doubts