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What are Cost and Freight (CFR) Incoterms? Know rules, benefits, and example
CFR Incoterm makes the exporter responsible for loading goods and sea transport. Learn more about its obligations, duties, usage, and meaning in this blog.
When you ship goods to international buyers, it’s important to understand how costs and responsibilities are divided at each stage of the journey. This is where Cost and Freight (CFR) Incoterms come into play. These globally-recognized trade rules outline responsibilities of each party in international trade — from arranging transportation and paying freight charges to managing risk once the goods are loaded onto the vessel. By defining each party’s obligations, Incoterms or International Commercial Terms provide clarity and reduce ambiguity in cross-border trade. In this blog, learn what Cost and Freight (CFR) Incoterms mean in international trade, the rules that govern them, their benefits, and a simple example of how CFR works in practice.
What is Cost and Freight (CFR) Incoterm?
According to Cost and Freight Incoterms (CFR), the exporter is required to load goods into an agreed-upon vessel that will transport them to the destination. Once the goods are on board the vessel, the importer is responsible for them, while the exporter is responsible for all necessary shipping documents. The exporter bears the cost of transportation to the destination, but all risk associated with shipping the goods is transferred to the buyers. In simple terms, CFR clarifies that the exporter is not responsible for securing insurance for goods or the cargo during shipment.1
Cost and Freight Incoterms 2020 rule – key changes and updates
CFR Incoterm is a universal trade term used internationally and was recently reviewed under Incoterms 2020 by the ICC. According to the 2020 rules, CFR is one of 4 Incoterms specifically used for sea and ocean freight transits. Under this Incoterm, the exporter is responsible till goods reach the agreed-upon port, after which the risk of goods is transferred to the importer. The importer also has the responsibility for payment charges after the destination port, including insurance coverage of goods.2
Cost and Freight (CFR) example
Let us consider an exmaple to understand how CFR Incoterm works in practice. Imagine that an exporter in India sells a shipment of textile products to a buyer in the US under CFR Incoterms. The exporter is responsible for arranging and paying for transport from the factory to the Indian port, completing export documentation, clearing customs in India, and covering the cost of loading the goods onto the vessel. The exporter also pays the ocean freight charges to ship the goods to the US.
Once the goods are safely loaded on the vessel in India, the risk transfers to the buyer. Even though the exporter has paid the freight up to the destination port, any loss or damage during the voyage is now the buyer’s responsibility. The buyer pays for insurance, handles import clearance and duties upon arrival in the US, and covers the cost of transporting the goods from the port to their final destination.3
Once the goods are safely loaded on the vessel in India, the risk transfers to the buyer. Even though the exporter has paid the freight up to the destination port, any loss or damage during the voyage is now the buyer’s responsibility. The buyer pays for insurance, handles import clearance and duties upon arrival in the US, and covers the cost of transporting the goods from the port to their final destination.3
Exporter/seller obligations under CFR Incoterm
Under CFR Incoterm, the seller is responsible for the goods and certain costs until they are loaded on the vessel and shipped. Responsibilities include:
● Provide goods and required documents ensuring that the products match the terms of the contract and that all commercial documents are accurate.
● Deliver the goods on board by the agreed date, making sure they are loaded safely onto the vessel at the port of shipment.
● Bear all costs and risks up to the port of shipment, including local transportation, handling, and any charges incurred before loading.
● Arrange and pay for ocean freight, securing space on a vessel and informing the buyer once the goods have been successfully loaded.
● Handle customs clearance formalities, including export documentation and any export permits required by the exporting country.4
Importer/buyer obligations under CFR Incoterm
Under CFR Incoterm, once the goods are loaded, the buyer assumes responsibility for insurance and all subsequent handling. Buyer responsibilities include:
● Receive and verify documents provided by the seller, which are needed to claim the goods at the destination port.
● Accept delivery of the goods at the nominated destination port, arranging for unloading and onward transportation.
● Assume risk once the goods are loaded on the vessel, meaning any loss or damage during transit is the buyer’s responsibility.
● Arrange marine insurance, since the seller is not obligated to provide insurance coverage.
● Handle import clearance, duties, and taxes, ensuring compliance with the importing country’s regulations and paying any required fees before the goods can enter the market.5
CFR Incoterm advantages
CFR can offer several benefits, particularly for certain types of shipments:
Suitable for bulk cargo:
Well-suited for bulk or non-containerized cargo such as commodities, minerals, grains, and raw materials, where sellers commonly arrange vessel space and shipping schedules.
Seller control over freight and loading:
CFR allows the seller to manage freight and loading, helping them maintain control over the shipping process up to the port of departure and limit risks associated with inland transportation and port handling.
Buyer flexibility in insurance:
With CFR Incoterms, the buyer has control over insurance arrangements, enabling them to choose their preferred insurer, negotiate better rates locally, and potentially reduce overall insurance costs.
CFR Incoterm disadvantages
While CFR offers certain advantages, it also comes with limitations that businesses should consider:
Not ideal for fragile goods:
CFR is not suitable for high-value or fragile goods. Since the buyer is responsible for arranging insurance once the goods are loaded, they may incur losses during ocean transit.
Limited to sea and inland waterway transport:
It is restricted to sea and inland waterway transport, meaning it cannot be used for air freight, rail shipments, or multimodal transport that includes multiple modes beyond waterways.
Requires seller access to vessel:
It requires the seller to have direct access to the vessel for loading, which may not be feasible in situations where the seller works through a freight forwarder or does not operate near a major port.7
What is CFR insurance?
It is recommended to obtain insurance for international ocean freight shipments, even if Incoterms do not specify cargo insurance under CFR. An insurance policy issued by either the exporter or importer can help cover risks associated with the shipment. In case of CFR, this insurance is the responsibility of the buyer after the shipment has been loaded on the vessel.8
Key considerations for CFR Incoterm
When choosing CFR for a shipment, it’s important to keep the following points in mind:
Cost responsibility:
Seller pays for transport, loading, and export formalities up to the port of shipment; buyer handles all costs afterward, including insurance and import duties.
Risk transfer:
Risk shifts from seller to buyer once goods are loaded onto the shipping vessel, making insurance the buyer’s responsibility.
Mode of transport:
CFR applies only to sea or inland waterway shipments and is best for bulk or non-containerized goods.9
Conclusion
Cost and Freight (CFR) Incoterms offer a clear division of responsibilities, making them a common choice for sea and inland waterway shipments. The seller manages costs and arrangements up to the port of shipment, while the buyer assumes risk once the goods are on board and takes charge of insurance, import clearance, and onward transport. This structure supports predictable planning but requires buyers to be ready for potential transit risks. Understanding how CFR works enables exporters to plan their shipping logistics with confidence.
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Frequently Asked Questions
1. Who controls the CFR?
The International Chamber of Commerce (ICC) governs regulations outlined in CFR Incoterm.
2. Can CFR be used for air freight?
The CFR Incoterm is only applicable for oceanic shipments.
3. How do you calculate CFR price?
Cost of goods, labour, packaging, labelling, insurance, transportation, customs, checks, paperwork, taxes, fees and port fees are usually factored into CFR price.
4. Does CFR include customs clearance?
An importer is responsible for paying any applicable import customs fees in addition to the CFR price.
5. What is the legal status of CFR Incoterms?
As per Incoterms 2020 by ICC, CFR Incoterm is a globally recognized commercial term used in international trade.
6. Who clears import/export customs under CFR shipping terms?
The export clearance process is handled by the exporter, while the import clearance process is handled by the importer.
7. Can I use CFR shipping terms for domestic shipping?
Since Incoterms are applicable on international trade alone, CFR cannot be used for domestic shipping. For shipments within the country, sellers can follow locally defined delivery terms, contractual agreements, and other industry terms and conditions.
8. When to use CFR Incoterm?
CFR is best suited for shipments where the goods do not require high-value insurance and the seller can directly access the vessel for loading. It is ideal for bulk cargo, raw materials, or non-containerized goods.10
9. Why is CFR not suitable for containerized cargo?
CFR is less suitable for containerized shipments because the goods are often handed over to the carrier at locations away from the port, such as a container yard or the seller’s premises. This increases the seller’s responsibility and cost, as they must arrange and pay for transport to the port.11
Published on November 30, 2022.
Updated on December 10, 2025.
Sources:
1. https://www.tradefinanceglobal.com/incoterms/cfr-cost-and-freight-shipping-meaning/
2. https://www.iibf.org.in/documents/pdf/20210325_Key%20changes%20to%20Incoterms%202020.pdf
3. https://dclcorp.com/blog/shipping/incoterms-cost-and-freight-cfr/
4. https://dclcorp.com/blog/shipping/incoterms-cost-and-freight-cfr/
5. https://dclcorp.com/blog/shipping/incoterms-cost-and-freight-cfr/
6. https://www.tradefinanceglobal.com/incoterms/cfr-cost-and-freight-shipping-meaning/
7. https://www.tradefinanceglobal.com/incoterms/cfr-cost-and-freight-shipping-meaning/
8. https://www.tataaig.com/knowledge-center/marine-insurance/cost-and-freight-cfr
9. https://academy.iccwbo.org/Incoterms/article/Incoterms-2020-cfr-or-cif/
10. https://academy.iccwbo.org/Incoterms/article/Incoterms-2020-cfr-or-cif/
11. https://www.tradefinanceglobal.com/incoterms/cfr-cost-and-freight-shipping-meaning/
Updated on December 10, 2025.
Sources:
1. https://www.tradefinanceglobal.com/incoterms/cfr-cost-and-freight-shipping-meaning/
2. https://www.iibf.org.in/documents/pdf/20210325_Key%20changes%20to%20Incoterms%202020.pdf
3. https://dclcorp.com/blog/shipping/incoterms-cost-and-freight-cfr/
4. https://dclcorp.com/blog/shipping/incoterms-cost-and-freight-cfr/
5. https://dclcorp.com/blog/shipping/incoterms-cost-and-freight-cfr/
6. https://www.tradefinanceglobal.com/incoterms/cfr-cost-and-freight-shipping-meaning/
7. https://www.tradefinanceglobal.com/incoterms/cfr-cost-and-freight-shipping-meaning/
8. https://www.tataaig.com/knowledge-center/marine-insurance/cost-and-freight-cfr
9. https://academy.iccwbo.org/Incoterms/article/Incoterms-2020-cfr-or-cif/
10. https://academy.iccwbo.org/Incoterms/article/Incoterms-2020-cfr-or-cif/
11. https://www.tradefinanceglobal.com/incoterms/cfr-cost-and-freight-shipping-meaning/
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