Procurement Glossary
Incoterms CFR: Definition, application and significance in international trade
November 19, 2025
Incoterms CFR (Cost and Freight) is one of the eleven international trade clauses that regulate the distribution of costs and risks between buyer and seller in sea freight transportation. This clause precisely defines when the risk is transferred from the seller to the buyer and which transportation costs are to be borne by whom. Find out below what Incoterms CFR means, how it is implemented in practice and which strategic aspects are relevant for Procurement .
Key Facts
- CFR applies exclusively to sea and inland waterway transportation
- Seller bears transportation costs to the port of destination, buyer assumes risk from the time of loading
- Insurance must be taken out by the buyer
- Risk is transferred when the goods cross the railing in the port of shipment
- Import and customs clearance is the responsibility of the buyer
Contents
What is Incoterms CFR?
CFR stands for "Cost and Freight" and is one of the C clauses of the Incoterms 2020, which provide for shared responsibility between seller and buyer.
Basic features of CFR
In the case of CFR, the seller assumes the costs for transportation and main freight to the named port of destination. However, the risk is transferred to the buyer when the goods are loaded onto the ship at the port of shipment. This separation of cost and risk transfer is characteristic of the CIF clause and other C-terms.
CFR vs. other Incoterms
In contrast to FOB, with CFR the seller also bears the main freight costs. Unlike CIF, however, the seller is not required to take out transport insurance. The buyer is always responsible for customs clearance and import processing.
Importance of CFR in Procurement
CFR provides buyers with cost transparency for main freight, while keeping control of insurance conditions. This enables precise calculation of total procurement costs and strategic decisions regarding transport insurance.
Implementation, obligations and evidence
The proper application of CFR requires clear documentation and precise handling of shared responsibilities between the contracting parties.
Seller obligations with CFR
The seller must deliver the goods in accordance with the contract, complete all export formalities and organize the transport to the port of destination. This includes providing the bill of lading, paying the main freight and notifying the buyer of the shipment in good time.
Buyer obligations and documentation
The buyer assumes the transport risk from the time of shipment and must take out his own transport insurance. Customs clearance and all import duties are the responsibility of the buyer. A precise commercial invoice is required for customs clearance.
Practical implementation steps
Successful CFR handling requires coordinated processes between all parties involved. Key steps include drafting the contract with a clear port designation, timely insurance cover by the buyer and the proper transfer of documents for the release of goods at the port of destination.
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Compliance key figures and quotas
Effective CFR management requires specific key figures for monitoring costs, risks and process quality in international procurement.
Cost transparency key figures
The freight cost ratio (freight cost/value of goods) and insurance cost ratio enable benchmarking between different suppliers and routes. In addition, total logistics costs including demurrage and port charges should be recorded to assess the true CFR costs.
Process quality indicators
The document completeness rate and customs clearance delay rate measure operational efficiency. The average transit time and punctuality rate provide information about the reliability of the selected CFR suppliers and transport routes.
Risk management metrics
The loss ratio and insurance performance rate assess the effectiveness of risk minimization. The compliance rate for export controls and the number of customs complaints per CFR shipment show the quality of the documentation processes and supplier performance.
Compliance risks and controls for Incoterms CFR
CFR transactions involve specific risks due to shared responsibility and complex international transportation chains that require systematic risk management.
Transportation risks and insurance gaps
The main risk lies in the time discrepancy between the transfer of risk and responsibility for costs. Buyers must ensure that their transport insurance is fully effective from the time of shipment. Insufficient insurance cover can lead to considerable financial losses in the event of damage.
Documentation and compliance risks
Incorrect or incomplete documents can lead to delays in customs clearance. Inaccurate descriptions of goods or missing proof of origin are particularly critical and can result in additional checks or penalties.
Operational control measures
Systematic supplier audits and standardized documentation processes minimize CFR risks. The implementation of track-and-trace systems and regular insurance reviews ensure continuous risk control for international sea freight shipments.
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Practical example
A German mechanical engineering company purchases steel components from South Korea under CFR Hamburg conditions. The Korean supplier organizes the sea transport and bears the freight costs to Hamburg. However, the risk is already transferred to the German buyer upon loading in Busan, who takes out his own transport insurance. On arrival in Hamburg, the buyer takes care of customs clearance and onward transportation to the factory.
- Clear cost allocation: seller pays sea freight, buyer pays insurance and customs duties
- Transfer of risk upon shipment in Busan
- Buyer retains control over insurance conditions and providers
Current developments and effects
Digitalization and changing trade structures influence the application of CFR clauses and require adjustments to the procurement strategy.
Digital document processing
Electronic bills of lading and digital trading platforms significantly accelerate CFR processing. AI-supported systems enable automated risk assessments and optimized insurance decisions, allowing buyers to make more informed decisions when choosing clauses.
Sustainability aspects in maritime transportation
Environmental regulations and CO2 pricing are changing the cost calculation for CFR transactions. Buyers must increasingly include sustainability criteria in their transportation decisions and develop corresponding clauses for green logistics solutions.
Geopolitical influences
Trade conflicts and sanctions regimes require increased compliance checks for CFR shipments. Export controls and extended due diligence obligations influence the drafting of contracts and supplier selection for international sea freight shipments.
Conclusion
Incoterms CFR offers a balanced solution for international ocean freight shipments, where sellers assume the transportation costs while buyers retain flexibility in insurance decisions. However, the clear separation of cost and risk transfer requires precise contract drafting and systematic risk management. For buyers with the appropriate expertise and insurance capacity, CFR is a cost-effective alternative to CIF that enables strategic advantages in global procurement.
FAQ
What does CFR mean for Incoterms?
CFR stands for "Cost and Freight" and means that the seller bears the costs of transportation and freight to the named port of destination. However, the risk is transferred to the buyer when the goods are loaded onto the ship, and the buyer is also responsible for the transport insurance.
When should CFR be chosen instead of CIF?
CFR is advantageous if the buyer can obtain better insurance conditions or has special insurance requirements. Companies with framework contracts for transport insurance or their own insurance departments often benefit from the more flexible CFR regulation compared to standardized CIF insurance.
What documents are required for CFR?
The seller must provide a bill of lading, a commercial invoice and all export documents. The buyer also needs their own transport insurance policy and must prepare all import documents for customs clearance. Complete documentation is crucial for smooth processing.
How is the transfer of risk determined at CFR?
The transfer of risk takes place when the goods cross the ship's rail at the port of shipment, not upon arrival at the port of destination. From this point on, the buyer bears all risks of loss or damage to the goods, although the seller still pays the freight costs to the port of destination.
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