Definition
Cost and Freight (CFR) is a legal term used in foreign trade contracts where the seller is obligated to arrange for the transport of goods by sea or inland waterways to a specified port of destination. The seller must also provide relevant documentation to allow the buyer to claim the goods upon arrival. However, the seller is not responsible for obtaining marine insurance for the cargo during transportation – so keep those fingers crossed!
| Cost and Freight (CFR) | Free on Board (FOB) |
|---|---|
| Seller arranges for transport to designated port. | Seller delivers when the goods are on board the ship at the port of shipment. |
| Seller covers cost of shipping until the port of destination. | Seller’s responsibility stops once the goods are loaded. |
| No obligation for insurance by the seller. | No provision of insurance by either party. |
| Typically used for maritime and inland waterway transport. | Can be used for any mode of transport but primarily maritime. |
Examples
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If you’re buying a beautiful new yacht (A dream come true!), and the seller is in a different country, and they specify the sale as CFR, it means they’ll handle getting the yacht onto a ship and to the port near you. Just don’t forget your life jacket before claiming it!
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Otto’s polyurethane miniatures need to be shipped to France. If he uses CFR in his contract, he knows the burden of arranging shipping is on the seller, while Otto focuses on deciding on hairstyle options for his miniatures’ debut!
Related Terms
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Incoterms: International Commercial Terms established by the International Chamber of Commerce to simplify and clarify shipping terms worldwide. They ease worries over who’s responsible for the goods at every stage of transport, so you can focus on more pressing matters, like lunch breaks!
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Marine Insurance: Insurance for cargo transported over water against loss or damage. Unfortunately, the buyer shoulders this risk with CFR!
Formula
To illustrate how CFR functions, here’s a basic overview (think of it like packing a sandwich for lunch!):
graph TD;
A[Goods Prepared by Seller] --> B[Transport Arranged by Seller];
B --> C[Goods Shipped];
C --> D[Customs Clearance at Destination];
D --> E[Buyer Receives Documents];
E --> F[Goods Available for Pickup];
Humorous Insight
“CFR: Because why should you worry about insurance when you can simply hope the ship doesn’t sink?!” 🚢
Frequently Asked Questions
What does CFR stand for?
CFR stands for Cost and Freight.
Is insurance included in CFR?
No, the seller is not responsible for marine insurance under CFR.
Can CFR be used for land transport?
CFR is strictly applicable to sea or inland waterway transport.
What happens if the goods are damaged in transit?
In this case, the buyer wears the risk cloak—assurance isn’t seamlessly covered!
Suggested Reading / Online Resources
- International Chamber of Commerce - Incoterms
- “Incoterms Explained” by Thomas J. J. B. Wood.
- Investopedia on Cost and Freight
Test Your Knowledge: CFR Understanding Quiz
Thank you for diving into the world of Cost and Freight (CFR)! Remember, in international trade, it’s all about who’s responsible for what—kind of like navigating a family dinner! 🎉
