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Cost and Freight – Definition

Cost and Freight (CFR) Definition

Cost and freight (CFR) is a term associated with international trade or international shipping which puts the responsibility of transporting purchased goods on the seller. When CFR is used in transactions, the seller is mandated to handle how goods purchased by a buyer are transported either by sea or inland waterway.

Cost and freight is a term that is legally binding, when used in international trade, the carriage of goods by sea is the duty of the seller and documents that will aid the recovery of the goods at the port must be given to the buyer.

A Little More on What Is Cost and Freight – CFR

Cost and freight (CFR) is a contractual clause entered by a buyer and seller which puts the responsibility of carriage of goods through the sea on the seller. Where the goods will be delivered are agreed upon by both parties in the contract.

In a cost and freight clause, the seller pays all costs associated with the carriage of goods and other unplanned expenses. There are many risks that a seller accrues in cost and freight, for instance, when the goods being transported are damaged or missing, the seller carries the liability of replacing the damaged goods. Also, there is a level of insurance that the seller carries on the goods.

Buyer Obligations

Both the buyer and the seller in a clause and freight (CFR) contract have obligations they must perform.

The major obligations of a buyer are;

  • Payment of the price of goods purchased.
  • Obtenaince of documents, license, and authorization slip to receive goods at the port.
  • Acceptance of goods when delivered.
  • Physical assessment of delivered goods to ensure whether they are in good condition.
  • Payment of taxes, tariffs and other charges imposed on the goods after they have been successfully delivered by the courier.
  • Depending on the agreement reached by the seller and buyer, the buyer might need to reimburse the seller for carriage expenses.

Seller Obligations

In a cost and freight (CFR), the obligations of a seller are the following;

  • Supply and transportation of goods paid for by a buyer.
  • Ensuring the delivery of goods by sea or inland waterway.
  • Carriage and payment of carriage bills for goods to be delivered to the buyer at designated ports.
  • Issuance of license and documents needed to claim the goods when delivered at the port.
  • Payment of all costs associated with transporting the goods until they are delivered to the buyer.
  • Payment for expenses associated with licensing and verification of the merchandise.

References for Cost and Freight

https://www.investopedia.com/terms/c/cfr.asp

http://www.businessdictionary.com/definition/cost-and-freight-C-F.html

https://www.globalnegotiator.com/international-trade/dictionary/cfr-cost-freight/

 

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