CFR stands for Cost and Freight (named port of destination), which means cost plus freight (…. designated port of destination). It means that the seller must pay the normal freight for transporting the goods to the port of destination, but the risk of damage to the goods and the additional costs will be borne by the buyer from the seller after the goods are loaded on board the ship at the port of shipment. CFR terms apply to water transport.
Basic obligations of the buyer and seller
(1) Obligations of the seller
① Sign a transportation contract for transporting goods from the designated port of shipment to the designated port of destination; load the goods required by the contract on board the ship at the time and port specified in the sales contract and pay the freight to the port of destination; notify the buyer promptly after loading. ② Bear all risks and costs before the goods are loaded on board the ship at the port of shipment.
③ Obtain official export certificates at your own risk and expense, and handle all customs formalities required for the export of goods, and pay export tariffs and other related fees.
④ Submit commercial invoices, bills of lading and other relevant documents, or electronic records or procedural vouchers with equivalent functions. (2) Buyer’s Obligations
① Complete insurance formalities and pay insurance premiums.
② Complete import customs clearance formalities and pay import taxes and fees.
③ Bear all risks after the goods are loaded on board at the port of shipment, and pay any additional costs caused by events that occur after the goods are loaded on board.
④ Receive the goods delivered by the seller in accordance with the contract, accept the delivery documents and pay the purchase price.
2. Issues to be noted when using CFR terms
(1) Responsibility for chartering or booking
According to the “2010 Incoterms”, the seller of a CFR contract is only responsible for chartering or booking a ship under normal conditions, using a normal type of ocean-going vessel (or inland river vessel), and transporting to the port of destination via a normal route. Therefore, the buyer generally has no right to make requirements such as restricting the nationality, type, age of the ship or specifying the ship of a certain liner company. However, in actual business, if the above requirements raised by the foreign buyer can be met and do not increase the cost, they can be considered for acceptance.
(2) Burden of loading and unloading costs
In the case of liner transportation, the transportation costs include the loading costs at the port of shipment and the unloading costs at the port of destination, and the unloading costs are borne by the seller. However, if the transportation is carried out by chartering, it is necessary to agree in the contract which party shall bear the unloading costs. In order to clarify responsibilities and avoid disputes, the buyer and seller may add the following phrases after the CFR terms when negotiating the contract:
① CFR liner terms (CFR Liner terms), which means that the unloading costs are handled according to liner terms and are borne by the shipowner.
② CFR Ex Ship’s hold (CFR Ex Ship’s hold), which means that the seller is not responsible for unloading, and the buyer bears the costs of lifting the goods from the bottom of the hold to the dock.
③ CFR Ex Tackle (CFR Ex Tackle), which means that the seller bears the costs of lifting the goods from the bottom of the hold until they are unloaded from the hook at the side of the ship.
④ CFR Landed (CFR Landed), which means that the seller bears all costs of unloading the goods to the shore of the destination port, including lighter fees and dock fees. (3) About Shipping Notice
When entering into a contract under FR, special attention should be paid to the issue of Shipping Notice. The seller must promptly issue a Shipping Notice to the buyer when the goods are loaded so that the buyer can go through the insurance procedures. If the seller fails to issue a Shipping Notice in a timely manner and the buyer misses insurance, and the goods suffer damage or loss during transportation, the seller cannot be exempted from liability on the grounds that the risk is on the ship where the goods have been loaded.