CFR Meaning: Cost and Freight Explained (With Examples)

What does CFR mean when buying from China?

CFR means Cost and Freight, a sea and inland waterway rule under which the seller pays freight to the named destination port while the buyer normally carries cargo risk from on-board delivery at the shipment port.

Keep the freight destination and the risk-transfer point separate. Paying the seller for transport does not mean the seller carries the voyage risk.

CFR responsibilities: who pays and who carries risk?

The table summarises the normal allocation. Its risk column concerns loss of or damage to the goods, rather than responsibility for performing customs or insurance services. An exception can apply if the buyer fails to give a required notice: risk may pass from the agreed shipment date or the end of the agreed shipment period, provided the goods are clearly identified as the contract goods.

Where does risk transfer, and who handles customs?

Risk normally transfers when the goods are on board the vessel at the shipment port. The named destination port identifies how far the seller pays freight, not where risk transfers.

The seller handles and pays for applicable export clearance; the buyer handles and pays for applicable import clearance, duties and import taxes. Required third-country transit clearance is also the buyer’s responsibility under CFR. Transit transport costs remain with the seller where allocated to it under the carriage contract.

Destination unloading is a separate cost question. If the seller incurs unloading costs under its carriage contract, it cannot recover those costs separately from the buyer unless otherwise agreed.

When should you use CFR, and when should you avoid it?

Consider CFR for a waterborne shipment where delivery occurs on board, the seller arranges freight and you can manage insurance and destination arrangements. Bulk or non-containerised cargo can fit this pattern.

For containers handed to a carrier at a terminal before vessel loading, consider CPT. For air, road or rail shipments, CFR is unsuitable.

If you want the seller to arrange cargo insurance, compare CIF. If you want to arrange main carriage yourself, compare FOB or, for delivery to a carrier at an agreed place, FCA.

China sourcing example: freight paid, voyage risk with the buyer

Illustrative example: an importer outside China orders non-containerised steel from a Chinese factory. The contract states CFR Rotterdam, Incoterms 2020, and separately identifies Shanghai as the shipment port.

The factory arranges export clearance, loading and freight to Rotterdam. Once the steel is on board in Shanghai, the importer normally carries the cargo risk. If the importer chooses insurance, it should arrange cover effective from that point rather than waiting for arrival.

Before accepting the quote, request an itemised list of destination charges and confirm which unloading costs the carriage contract includes. Budget for import clearance, applicable taxes and onward transport.

UK customs example: a CFR invoice is not the final tax calculation

For a shipment entering Great Britain valued using the transaction-value method, HMRC guidance requires transport, insurance and relevant loading or handling costs up to the UK border to be included where not already counted. Check what the CFR invoice covers before adding freight again, and include separately incurred insurance costs attributable to that part of the journey.

The import VAT value starts with the customs value and adds applicable Customs Duty, excise duty and other import charges, excluding import VAT itself. It also includes relevant incidental expenses to the first UK destination and those resulting from transport to a further UK destination known at importation, without counting costs twice. Buyers elsewhere should check their destination’s customs guidance.

Check the quote and compare neighbouring terms

Record the named destination port and agreed point within it, shipment port, shipment window, cargo description, insurance arrangements and destination-charge allocation in writing. Confirm when the seller will provide the transport document and shipment notices needed to receive the goods, and arrange any chosen insurance before risk transfers.

Use the Incoterms chart for a responsibility comparison and the price converter to organise quote comparisons. Confirm actual charges with the parties handling the shipment.

For the wider framework, read Incoterms explained. Follow the linked term guides for their detailed obligations.