Procurement Glossary
CFR (Cost and Freight): Definition and application in procurement
November 19, 2025
CFR (Cost and Freight) is an important Incoterm clause that regulates the distribution of costs and risks between buyers and sellers in international trade. With CFR, the seller bears the transport costs to the port of destination, while the risk is transferred to the buyer upon loading. Find out below what CFR means, how it is applied in practice, and which strategic aspects are relevant for buyers.
Key Facts
- CFR applies exclusively to maritime and inland waterway transport.
- Seller bears transport costs, buyer assumes risk from loading
- Transport insurance is not included in the CFR price.
- The transfer of risk occurs when crossing the ship's railing.
- Import customs clearance is the responsibility of the buyer.
Contents
Definition and meaning of CFR
CFR precisely defines responsibilities and cost allocation in maritime trade between contracting parties.
Basics and core elements
CFR (Cost and Freight) is one of the eleven Incoterms regulations for international trade. The seller bears the costs of transport and freight to the named port of destination, while the transfer of risk takes place when the goods are loaded onto the ship.
- Costs borne by: Seller to port of destination
- Risk transfer: Buyer from shipment
- Scope of application: Exclusively maritime and inland waterway transport
CFR vs. other Incoterms
Compared to CIF, CFR does not include transport insurance, while FOB transfers the costs to the buyer from the port of shipment. This distinction has a significant impact on the overall cost analysis.
Importance of CFR in Procurement
For buyers, CFR offers planning security in terms of transport costs, but requires independent transport insurance and risk protection. Choosing CFR allows for better control over insurance conditions and costs.
Process, control and planning
The successful implementation of CFR transactions requires structured processes and clear responsibilities.
Contract drafting and documentation
In CFR contracts, the port of destination, delivery dates, and quality specifications must be precisely defined. The commercial invoice and bill of lading are key documents for processing.
- Clear port designation in the contract
- Delivery date definition (shipment vs. arrival)
- Quality and quantity specifications
logistics coordination
Coordination between suppliers, carriers, and your own company requires precise coordination. Advance Shipping Notices enable timely preparation for goods receipt and customs clearance.
Risk management and insurance
Since CFR does not include transport insurance, the buyer must arrange insurance coverage independently. This requires an assessment of transport risks and the selection of suitable insurance products in accordance with the value of the goods and transport routes.
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Operating figures for CFR
Relevant key figures enable effective control and optimization of CFR procurement processes.
Cost efficiency metrics
The total cost consideration for CFR includes the price of goods, freight, and additional insurance costs. Total cost of ownership (TCO) forms the basis for supplier comparisons and condition negotiations.
- CFR price vs. market average (%)
- Insurance costs as a percentage of the value of goods (%)
- Total logistics costs per unit (€)
Delivery performance indicators
Punctuality and quality of deliveries under CFR conditions require continuous monitoring. Delivery performance indicators identify potential for optimization in the supplier base.
Risk and compliance metrics
Loss ratios, insurance claims, and compliance violations in customs clearance processes are important control variables. These key figures support risk assessment and supplier development for sustainable CFR partnerships.
Risks, dependencies and countermeasures
CFR transactions involve specific risks that can be minimized by taking appropriate measures.
Transportation risks and insurance gaps
The main risk with CFR lies in the lack of transport insurance provided by the seller. Damage during transport is borne entirely by the buyer, without automatic insurance coverage.
- Damage to goods caused by sea weather or accidents
- Total loss in a shipping accident
- Theft or piracy
Supplier and quality risks
With CFR terms, the buyer has limited control over transport quality and timing. Delays or quality defects can only be detected upon arrival of the goods, which jeopardizes production planning.
Currency and market risks
Longer transport times with CFR increase currency risks, especially with volatile exchange rates. Freight surcharges can subsequently burden the calculation. Hedging strategies and flexible price clauses offer protection against unforeseen cost increases.
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Practical example
A German mechanical engineer purchases steel components from China under CFR Hamburg terms. The supplier covers transport costs of €2,500 for a 20-foot container shipment worth €45,000. The buyer independently arranges transport insurance for €180 (0.4% of the value of the goods) and coordinates customs clearance through a local customs agent.
- Cost transparency: Separate disclosure of freight and insurance
- Risk control: Individual insurance conditions
- Flexibility: Choose your insurance provider based on your own criteria
Trends & developments at CFR
Digitization and changing trade structures are having a lasting impact on the application of CFR terms.
Digital document processing
Electronic bills of lading and digital trading platforms significantly accelerate CFR transactions. AI-powered systems automate document verification and compliance monitoring, reducing error rates and shortening processing times.
- Blockchain-based document authentication
- Automated compliance checks
- Real-time tracking integration
Sustainability aspects
Environmental awareness is leading to greater consideration of CO2 emissions in CFR calculations. Purchasers are increasingly integrating sustainability criteria into supplier selection and transport decisions, which broadens traditional cost considerations.
Risk diversification
Geopolitical uncertainties are reinforcing the trend toward more flexible CFR agreements with alternative ports of destination. Multi-port options and dynamic route planning are becoming increasingly important for resilient supply chains.
Conclusion
CFR offers buyers a good balance between cost control and risk management in maritime trade. Separating cost coverage and risk responsibility allows for flexible insurance arrangements and better overall cost control. However, successful CFR application requires professional risk management and structured processes for documentation and logistics coordination. In an increasingly digitalized trading environment, CFR remains an important tool for strategic procurement decisions.
FAQ
What exactly does CFR mean?
CFR (Cost and Freight) is an Incoterm whereby the seller bears the costs of goods and sea freight to the port of destination. However, the risk is transferred to the buyer as soon as the goods are loaded onto the ship. Transport insurance is not included.
When should CFR be chosen instead of CIF?
CFR is suitable if the buyer can obtain better insurance terms or has special insurance requirements. CFR can also be more cost-effective than CIF with standard insurance for low-value goods or short transport distances.
What documents are required for CFR?
Essential documents include the commercial invoice, bill of lading, packing list, and, if applicable, certificate of origin. The seller must provide these documents for shipping, while the buyer also requires insurance documents.
How is the transfer of risk defined in CFR?
The transfer of risk takes place when the goods cross the ship's rail at the port of shipment. From this point on, the buyer bears all risks of loss or damage to the goods, even though the seller still bears the transport costs.
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