Incoterms & trade contracts CFR

Cost and Freight

Used only for sea and inland-waterway transport. The seller loads the goods on board at the port of shipment and pays freight to the named destination port, but risk passes to the buyer when the goods are on board at loading, exactly as under FOB. The buyer therefore carries the transit risk and should arrange its own cargo insurance. Prices are quoted with the destination port, e.g. “CFR Iskenderun”.

Related terms

Free On Board FOB

One of the most common terms in raw material trade, used only for sea and inland-waterway transport. The seller loads export-cleared goods onto the vessel nominated by the buyer at the port of shipment, and risk passes once the goods are on board. The buyer arranges freight and insurance; for bulk cargo the loading rate, laytime and demurrage must be agreed separately. For containerised goods FCA is the more accurate choice.

Cost, Insurance and Freight CIF

A sea-transport term that adds, to CFR, cargo insurance taken out by the seller in the buyer’s favour. Under Incoterms 2020 the minimum cover for CIF is Institute Cargo Clauses (C) for 110 % of the contract value; if broader “all risks” (A) cover is wanted it must be written into the contract. Risk still passes when the goods are loaded on board at the port of shipment, so the seller pays freight and insurance but does not carry the voyage risk.

Freight (freight rate)

The price paid to the carrier for moving goods. Container freight is priced per box (e.g. USD per 40’HC), bulk freight per tonne (USD/mt), and chartered ships by daily hire (USD/day). Surcharges can be added to the base rate: bunker (BAF), currency (CAF), terminal handling (THC), congestion and war-risk surcharges. Freight markets are volatile and are tracked through indices such as Drewry, Freightos (FBX) and the Baltic Dry Index (BDI).

Bill of lading (B/L) B/L

The key document of sea transport, issued by the carrier to show that it has received or loaded the goods. It has three functions: a receipt for the cargo, evidence of the contract of carriage and, when issued “to order”, a document of title. Because whoever presents an original can take delivery, it is the backbone of letters of credit and cash-against-documents deals. A “clean on board” B/L shows the goods were loaded in apparent good order.

Explained in the trade handbook

Trade handbook