In international commerce, certain trading terms work as legal contracts between the buyer and seller, specifying the roles and responsibilities of both parties. Cost and Freight, CFR, is one such trading term, also referred to as incoterm, which clearly defines when the ownership, risk, and cost of the product transfers from the seller to the buyer. Let us understand the cost and freight (CFR) incoterm meaning in detail. In this contract, the seller is required to make arrangements for the carriage and pay for it until it reaches the nominated destination. However, once the shipment is loaded at the destination, the buyer bears the risk of any loss or damage.
Here are four important facts you must know about CFR shipping:
1. Know who pays the freight in CFR shipping
In this type of trading contract, the responsibility is on the seller to cater to all the freight charges. He has to transport goods to the buyer’s destination. Besides, the seller must provide all the necessary documentation regarding the pick up of the shipment to the buyer. So when it comes to paying for shipment transportation, the shipping party has more responsibility under CFR shipping as the seller fully bears the freight cost.
2. Know who handles custom clearance
As per the CFR shipping term, all export custom proceedings need to be taken care of by the seller. The seller manages relevant documents related to export like the bill of lading, commercial invoice, and packing list. Additionally, the seller is also responsible for making payments such as freight forwarding and terminal fees. Once the customs clearance procedure is completed, the seller then hands over all the documents to the buyer.
3. Understand how CFR is calculated
It is important to calculate the cost of shipping goods accurately. Factors such as custom fees, duties, taxes, insurance charges, and documentation must be taken into account when calculating the price of CFR. For calculation, one must know about the shipping term FOB, ‘free on board’, commonly referred to as ‘freight on board’. It is an indicator of the period when the responsibility and ownership of goods end on the seller. The CFR can be calculated using the below formula:
CFR Price = FOB Price + Shipping
4. Know incoterms that are similar to CFR
Now that you know the CFR shipping term meaning, you must also know about other incoterms closely related to CFR. One other incoterm is the cost insurance and freight (CIF). In this case, the seller arranges for the carriage of goods to the destination port and has an additional obligation of insuring all the goods until they reach the port. As per the free alongside ship (FAS) incoterm, the seller is responsible for only delivering the cargo to the port, and after that, the responsibility shifts completely to the buyer.
Cost and Freight undoubtedly play a crucial role in international commerce. If you are a seller involved in cross-border trade, make sure you know everything about CFR before choosing it. You must also carefully select a reliable payment platform like Tazapay to ensure safe cross-border transactions at all times.