CFR Incoterms 2020 – what does the Cost and Freight rule mean?

In international trade, every detail matters – from the choice of contractor, through the organisation of transport, to the terms of delivery specified in the contract. These terms determine who bears the transport costs and who assumes the risk in the event of unforeseen circumstances.

That is why Incoterms 2020, developed by the International Chamber of Commerce, have become an indispensable tool in global trade, organising the rules of responsibility between sellers and buyers.

One of the most commonly used rules in maritime and inland waterway transport is CFR (Cost and Freight). This rule clearly states that the seller pays the main freight to the port of destination, but the risk associated with the transport is transferred to the buyer at the port of loading. However, before a business decides to choose this formula, it should thoroughly understand how the costs are divided and what obligations each party assumes.

In the rest of this article, we will explain step by step what exactly CFR Incoterms 2020 is, what consequences it has for both parties to the sales contract, and in what situations it applies.

CFR in a nutshell: definition and meaning of the rule

CFR Incoterms 2020 means that the seller pays the sea freight costs to the agreed port of destination, but the risk of loss or damage to the goods passes to the buyer at the time of loading onto the ship.

In practice, this means that the seller delivers the goods on board the ship in the country of departure and bears the basic transport costs paid to the port of destination. From that moment on, however, all risks are transferred to the buyer, who is responsible for any damage, additional costs related to the transit of goods and collection at the port of destination.

The CFR rule is intended to simplify international trade and enable the buyer to resell the goods during transport. This is particularly useful for large contracts where the division of costs and risks must be clearly defined in the sales contract.

Point of risk transfer: ship, port of loading

Under the CFR rule, the risk of loss or damage to the goods passes to the buyer when the goods are loaded onto the ship.

This means that from the moment of loading – even if the goods are already on board but have not yet sailed – all risk of loss of the goods passes to the buyer. The seller bears the transport costs but is not liable for any damage that may occur during the carriage of the goods by sea. Therefore, the buyer often decides to take out an insurance contract to limit unnecessary risks at various stages of sea transport.

Transport costs in CFR – seller and buyer

In CFR deliveries, the seller bears the costs of transport to the agreed port of destination, while the buyer is responsible for all costs after unloading at the port of destination.

In practice, this means that the seller bears the costs of sea freight, the transport document, the necessary packaging of the goods and customs formalities in the country where the transport begins. The buyer, in turn, bears the costs associated with import clearance, customs duties, port fees and storage at the port of destination. The buyer is also responsible for the cost of further transport of the goods to the agreed destination.

Costs of transporting goods under CFR Incoterms 2020	Seller	Buyer
Sea freight costs	✅	❌
Transport costs in the country of departure	✅	❌
Export customs formalities	✅	❌
Insurance (optional)	❌	✅
Import clearance, customs duties	❌	✅
Charges at the port of destination	❌	✅
Costs of further transport to the destination	❌	✅

In short: the seller pays for transport to the port of destination, but the buyer bears all costs and risks on the import side.

Seller’s obligations under CFR

Under CFR Incoterms 2020, the seller has fulfilled their part of the contract when the goods are loaded onto the ship at the port of departure.

Seller’s obligations under CFR Incoterms:

prepare and deliver the goods in proper condition,
proper packaging of the goods,
covering the costs of transporting the goods to the port of loading,
concluding a contract of carriage with the carrier and providing a transport document (e.g. bill of lading) together with an electronic copy,
arranging export customs formalities and obtaining the necessary export licence.

The seller bears the basic transport costs paid to the port of destination, but the risk of loss or damage to the goods passes to the buyer at the time of loading. Importantly, the seller is not obliged to insure the goods.

Buyer’s obligations under CFR

In the case of CFR, the buyer is responsible for collecting the goods at the port of destination and all further costs on the import side.

The main obligations of the buyer in CFR include:

covering the costs of unloading at the port of destination, port fees and import customs duties,
organising any further transport of the goods to the destination at their own expense,
concluding an insurance contract (if the buyer wishes to limit the risk of loss or damage to the goods during sea transport),
counting the goods and checking that they are in a condition consistent with the transport document,
ensuring that the goods actually reach their final destination.

The buyer assumes the risk at the time of loading at the port of departure. Although they do not pay for sea transport, they are in fact responsible for any damage to or loss of the goods during transport.

Scope of application: when to choose CFR?

The CFR Incoterms 2020 rule applies only to sea and inland waterway transport.

CFR is a good choice when the seller has easier access to carriers in the country of departure and can organise transport more efficiently. This is a convenient solution for the buyer, as they immediately know the freight costs to the port of destination and can plan further logistics. At the same time, they must remember that the risk of loss or damage is transferred to them at the port of departure.

Example: A Polish exporter from Gdańsk delivers goods on board a ship, paying the transport costs to Shanghai, the agreed port of destination. From the moment of loading, the risk is transferred to the contractor, even if the ship encounters a storm during the voyage.

Summary: CFR (Cost and Freight)

CFR Incoterms 2020 is a rule whereby the seller bears the costs of transport to the port of destination, but the risk is transferred to the buyer at the moment of loading at the port of departure.

Thanks to this division of responsibilities, the parties clearly know who pays for the freight and who is responsible for any risks and additional costs associated with the transit of goods. This rule will result in the delivery of goods to the agreed port of destination, but at the same time requires the buyer to consider taking out an insurance contract to protect them against losses.

Frequently asked questions

What does Incoterms 2020 CFR mean?

Incoterms 2020 CFR means that the seller pays the costs of sea transport to the port of destination, but the risk passes to the buyer as soon as the goods are loaded onto the ship. In practice, this means a clear division of costs and responsibilities between the parties, which facilitates international trade.

How does CIF differ from CFR?

CIF differs from CFR in that it additionally includes the obligation for the seller to take out insurance. In CFR, the seller bears the transport costs, but it is the buyer who is responsible for obtaining insurance and protecting against the risk of loss or damage to the goods.

What are the differences between CFR and FOB?

In CFR, the seller organises and pays for sea freight to the port of destination, and the risk passes to the buyer upon loading. In FOB, on the other hand, the buyer concludes the transport contract himself and assumes the transport costs from the port of origin, which gives him greater control over logistics.

Is CFR good for sea transport?

Yes, CFR was created specifically for sea and inland waterway transport. It works particularly well in the trade of large consignments of goods, where the seller has the opportunity to organise freight and the buyer accepts the risk at the port of loading.

What does the required shipment date mean in the CFR rule?

The required shipment date is the agreed time by which the seller must deliver the cargo to the ship at the port of departure.

What is the final port of destination of the goods in the CFR rule?

The final port of destination of the goods is the place to which the seller pays for sea freight.

The buyer must collect the cargo there and is responsible for all further import-related activities and costs.

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