What Is the Basic Meaning of CFR? 

let’s talk about what happens under CFR. So, the seller has to get the goods ready for export and load them onto the ship at the port. They also pay for getting the goods all the way to the destination port. But here’s the thing: once the goods go past the ship’s rail at the port of shipment, the risk of anything bad happening to the goods—like getting damaged or lost—moves from the seller to the buyer. For example, if a Chinese company sells electronics to a US buyer under CFR, the Chinese side handles packaging, export paperwork, and pays for the shipping to the US port. But once the goods cross that ship’s rail, the US buyer takes over the risk.

Responsibilities of the Seller and Buyer

Seller's Responsibilities:

Under CFR, the seller has a lot on their plate. They need to get the goods out on time and provide all the necessary documents, like invoices and packing lists. These papers are crucial for customs and ownership. The seller also has to package the goods securely and label them clearly. They handle export licenses, transport to the port, loading costs, and customs fees in the exporting country. The seller is responsible for the goods until they’re safely loaded onto the ship. After that, they give the buyer a bill of lading as proof of delivery.

Buyer's Responsibilities

Once the goods are loaded, the buyer takes over. We accept the goods at the destination and arrange for unloading, which they also pay for. The buyer pays for the goods according to the agreed terms and takes on the risk of any loss or damage after the goods pass over the ship’s rail. They also handle import clearance, including tariffs, taxes, and safety inspections.

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Advantages and Challenges of CFR

Advantages:

For seller, CFR clearly defines their responsibilities and costs up front. This makes it easier to set prices that cover transportation costs and ensure profit. Once the goods are loaded, the seller is no longer responsible for any risks.

For buyer, you can choose whether to buy insurance and what kind of coverage you need. This gives them control over their risk management costs. Also, the buyer has more flexibility in handling transportation and customs procedures at the destination port.

Challenges:

Since the buyer takes on the risk after the goods are loaded, they need to carefully consider insurance to protect against potential losses.

There's always a risk of the buyer defaulting, such as delaying payments or not arranging transportation on time. Sellers should check the buyer's credit history and past transactions before signing a contract.

During transportation, we will miss issues like delays or damage can arise. Both parties need to clearly define responsibilities and solutions in the contract to avoid disputes and losses.

Comparing CFR with Other Trade Terms

CFR vs. FOB:

CFR vs. CIF:

CFR vs. CPT: