Preliminary remark: ‘Cost and Freight’ means that the seller is to deliver the goods on board a vessel it has nominated for shipment to the named port of destination/discharge (or to procure goods already so delivered). The port of delivery is not the named port but may be any agreed port of departure to the named port of destination. It may or may not be situated in the seller’s country.

CFR has two critical points, because risk passes and costs are transferred at different places. While the contract will always specify a destination port (‘ship to’), it might not specify the port of shipment (‘ship from’), which is where risk passes to the buyer. If the shipment port is of particular interest to the buyer, the buyer is well advised to identify it as precisely as possible in the contract.

The use of ‘Cost and Freight’ may be appropriate for goods that don’t ‘fit into a container’ such as bulk and breakbulk goods that are loaded directly on the ship from the seller’s means of transport or facilities in the port of departure and that are directly received by the buyer from the ship in the port of destination. However, when the goods are in containers, it is common for the seller to hand the goods over at a port terminal, where the goods are stored awaiting arrival and loading of the vessel, rather than actually placing them on board a ship; and for the buyer to collect the goods at a terminal in the port of destination. That terminal will often be nominated by the seller’s ocean carrier. In such situations, the CFR rule would be inappropriate, and the CPT rule should be used.

‘Cost and Freight’ may not be an appropriate delivery condition as it often contradicts logistical reality, thus creating uncertainty in case of dispute. Despite this, CFR remains a popular Incoterms® rule because:

  1. the seller brings the goods physically outside the customs territory and outside the jurisdiction of the country of export, as the ship’s rail is often qualified to be the ‘imaginary customs border’. This may limit the buyer’s risk to a certain degree if no precise place of delivery/departure have been agreed upon;
  2. delivery is to be executed against a port-to-port transport document that may well qualify as a (negotiable) B/L as opposed to an multimodal transport document that is issued at an inland place of delivery for carriage to an inland place of destination. A (negotiable) transport document will often be a preferable document of delivery when payment is executed under a documentary credit or documentary collection; or
  3. the buyer receives the goods upon arrival at its customs territory, liberating the seller from any involvement with the goods after arrival in the jurisdiction of the country of import. The transaction price will (more or less) match the value of the goods upon arrival at the customs border of the country of destination (customs value) for many countries.

Question 1

How are goods handed over to the carrier?

‘Cost and Freight’ means that the seller must contract for carriage from the agreed port of shipment (if any such port is agreed between the parties) to the named port of destination. It must deliver the goods to its carrier in that port of shipment by placing them on board the vessel (or by procuring goods so delivered). Unless the seller and buyer have agreed on a specific port of departure (‘ship from’) where the goods are to be delivered, the seller may choose the port of delivery/shipment that best suits its purpose.

Exactly how delivery is executed is to interpreted in accordance with the customs of the port of departure, if any. Such port customs may vary widely. For example, in some ports, goods are considered ‘on board’ for delivery purposes when they are under ship’s tackle. Further, the nature of the cargo (liquids, gaseous products, bulk, conventional shipments, …) and the type of vessel frequently dictate how loading is accomplished.

In the absence of customs of the port or other relevant consideration such as practice between the parties, the default position is that goods may be considered to be delivered ‘on board’ the vessel when they have passed into the carrier’s custody for transportation, as evidenced by a transport document to the named port of destination, executed by the seller’s carrier. For the purposes of passage of risk, the goods are considered delivered at the first point of rest on the vessel. Depend­ing on the transport contract, the nature of the goods, the infrastructure available etc., delivery ‘on board’ may however require different specific actions (placing on board, stowing, trimming, lashing, securing, …).

If the parties have agreed that shipment (departure) should take place within an agreed time period, the CFR buyer has the option to choose the date of delivery within that period. The buyer must notify the seller thereof in a timely manner. Whenever the buyer is entitled to determine the point of receiving the goods (quay, …) at the named port of destination, it must also give the seller sufficient notice thereof. If the buyer fails to give such notice, it bears all risks of loss of or damage to the goods from the agreed date or the expiry date of the agreed period for shipment, provided that the goods have been clearly identified as the contract goods.

The CFR seller and its carrier should agree on the date, on the point of taking over the goods (the ‘loading point’) in the port of shipment and on the point of arrival in the named port of destination, and note these in the transport document.

Unless the manner in which the goods were delivered to it precludes this, the carrier will verify whether the apparent condition of the goods and/or their packaging allows for a safe journey. The carrier may also verify the apparent nature, quantity, dimensions and weight of the goods. When the seller delivers goods to the carrier already stuffed into a container, the carrier will not be in a position to do so and the transport document will contain such reservations as ‘shipper’s stow load and count’, ‘said to contain’ and/or ‘sealed by shipper’.

Question 2

When and how are goods made available to the consignee?

Under the CFR Incoterms® 2010 rule, the named port is the destination of the contract of carriage the seller has to make and the place where the buyer must receive the goods from the carrier.

The parties are well advised to identify as precisely as possible the point within that agreed port of destination where the carrier is to present the goods to the buyer. Whenever the buyer is entitled to determine the point of receiving the goods within the named port of destination, it must give the seller sufficient notice thereof. If a specific point at the named port of destination is not agreed or is not determined by practice, the seller may select the point at the named port of destination that best suits its purpose and instruct its carrier accordingly.

The seller must notify the buyer that the goods have been delivered to the carrier in the port of departure (name of the vessel, time of departure, estimated time of arrival, …). The seller must also give the buyer any notice needed in order to allow the buyer to take measures that are normally necessary to enable the buyer to take the goods.

The buyer must receive the goods from the carrier at the named port of destination. Depending on the transport contract, the nature of the goods, the infrastructure available etc., this reception from to the carrier may require the buyer to discharge the vessel.

The CFR Incoterms® rule allocates to the seller only such costs of discharging that are part of the contract of carriage and thus included in the price of transport. The buyer must pay all other unloading costs. The risk of unloading will be for the buyer,1 regardless whether discharging is part of the contract of carriage or not.

Bulk goods may be delivered ‘free out’, i.e. to be presented for unloading still in the cargo holds, with unloading to be paid for and handled by the buyer. Breakbulk goods will often be presented ‘Hook’, with unstrapping to be paid for and handled by the buyer. Generally speaking, it is reasonable to expect that containerized goods should be unloaded from the ocean vessel at the port of unloading and be delivered to the container yard at the seller’s expense.

Upon receipt of the goods from the carrier at the port of destination, the buyer (consignee) will verify the nature, quantity and weight of the goods as well as their appar­ent condition and packaging and make the appro­priate reservations when signing the transport document for receipt of the goods. Such verification does not equal a full conformity assessment. In case of redirection or redispatch, such assessment may be deferred until after the goods have arrived at the final destination.2

Question 3

Who shall pay the price for transport?

The carrier acts on the basis of a contract of carriage entered into with the CFR seller. Therefore, it is for the seller (usually also the consignor or shipper) to pay the price for transport to the named port of destination.

Together with the claim against the CFR seller being the contractual shipper, the carrier may, subject to its precise legal quality and the law applicable to the contract of carriage, have a lien or a right of retention for the price of transport and additional charges due against the consignee (CFR buyer).

Question 4

What additional costs can be added to the price for transport?

Upon agreeing on a price of transportation, the CFR seller and the carrier are well advised to stipulate clearly which transport costs (loading, stuffing, trimming, strapping, dunnaging, discharging, security warnings, port duties, documents, …) are included in that transport price and which are not.

CFR-sellers are advised that marine carriers, when offering a price for transport, often also use the abbreviation ‘c.f.r.’ as a shipping term being part of the contract of carriage. Their offer will however not automatically correspond to the cost and risk splitting operated under the Incoterms® rules but will be subject to the conditions applied by the shipping line that may include in its c.f.r.-price for transport:

  • transit in the port of unloading from the ship to the port terminal (in full liner terms)
  • unloading (in liner out)
  • unloading until under ship’s tackle, still attached to the ‘hook’ (in ‘hook’)
  • exclusive of unloading (in ‘free out’)

As the CFR Incoterms® rule allocates to the seller only such costs of discharging that are part of the contract of carriage and thus included in the price of transport,3 it would be sufficient for the seller to contract for carriage on ‘free out’ terms. The buyer must pay all other unloading costs.

The main rule under CFR is that the seller must contract on ‘usual terms’ at its own expense for the carriage of the goods to the named port of destination. What ‘usual terms’ are may vary, but it is currently well established that only such additional costs (‘surcharges’) that are unforeseen, such as those arising from stranding, collision, strikes, governmental commands, or bad weather conditions are not included. Theseare at the expense of the CFR buyer.4

Outside such clear cases, it is sometimes difficult to verify which costs are in accordance with usual transport terms. For instance, is the carrier entitled to charge the consignee for notification of arrival, for issuing paper documents instead of digital messages, …? When only unforeseen costs fall on the buyer, the question moreover arises by whom such costs are unforeseen: the seller, the carrier or the buyer?

It can be generally stated that the price of transport (freight prepaid by the seller) should include all ordinary transport costs until the port of destination. This includesthe costs of handling, storage, and transshipment, as well any charges made by port authorities during the transportation. The seller is obliged to contract for carriage by a usual route in a means of transportation of the type normally used for the type of goods sold. As much as it is evident that this means of transportation must be fit to carry the goods to the destination safely, the seller must contract with a carrier who is capable of anticipating ordinary cost items during the transportation and including them in the prepaid freight. Currency and bunkering adjustments valid at the moment of departure5 are to be included in the freight at the expense of the CFR seller.

Parties are well advised to specify in the contract of sale what specific additional costs will be borne by the seller and what costs by the buyer. The CFR seller should instruct its carrier accordingly to avoid dispute.

Buyers should take particular care when using the C family of rules – see the opening section of this CFR entry.

Question 5

Is there a variable part to the price for transport (i.e. ‘adjustment factors’)?

Upon agreeing on a price of transportation, the CFR seller and the carrier are well advised to stipulate whether any price adjustment is permitted.

The contract of carriage may sometimes provide for a retroactive adjustment to the ordinary freight payable. These adjustments come in many different forms, such as the Bunker Adjustment Factor (BAF),6 the Currency Adjustment Factor (CAF)7 as well as other charges such as International Ship and Port Security (ISPS),8 war/pirate-risk, congestion, etc. Such adjustments will not be included in the price originally agreed for the transportation but will typically be calculated at the time the goods are handed to the carrier. All such transport price adjustments are to be paid by the CFR seller.

Question 6

When is the price for transport payable?

The CFR seller and the carrier must agree on the payment of freight in a manner so that the buyer can immediately receive the goods on arrival without having to pay any costs that were included in the contract of carriage. If the transportation document records the payment of freight it should be marked accordingly.

Regardless of what the transport contract provides with respect to the timing of the payment of freight, the CFR seller always has an obligation to the buyer to pay the transport price (and any of the adjustments added at the time the goods are handed to the carrier, as discussed in question 5).

If the price for the transportation agreed between the seller and the carrier includes unloading or further handling after unloading, those costs must also be paid by the seller. The contract of carriage may provide for these or other additional costs to become payable upon or after arrival of the goods as agreed with the carrier

Question 7

How are the goods to be packaged?

Unless agreed otherwise, as the goods travel at the risk of the buyer. The goods must be packaged in a manner ‘appropriate for their transport’. ‘Appropriate for their transport’ is not equal to ‘reasonable’ or ‘usual’ but refers to a fitness for the purpose of transportation, in case of CFR by sea or inland waterways. This comprises qualities such as ‘apt’, ‘becoming’, ‘befitting’, ‘belonging’, ‘right’, ‘suitable’, and to this purpose, verifiable by the carrier.

The indication on the transport document ‘unpacked’ does not automatically mean that the goods have not been ‘appropriately’ packed for their transport. It may be ‘usual for the particular trade to transport the type of goods sold unpackaged’ (some agricultural goods, mineral products, breakbulk, …).

Question 8

Is the seller or the buyer responsible for customs clearance?

When selling goods leaving for a destination outside of the customs territory, it is up to the seller to carry out all customs formalities necessary for the export of the goods from the port of delivery (‘ship from port)9 at its own risk and expense. This includes any export license or other official authorization that may be required.

Transit formalities after departure from the port of shipment that are not included in the contract of carriage are to be executed at the buyer’s risk and expense. The buyer will also have to carry out all customs clearance for the import of the goods at the named port of destination.

The parties must provide each other assistance in obtaining any documents and information, including security-related information, needed for the export, transport and import of the goods.

A delivery ‘on board’ the ship from an administrative point of view often equals a delivery outside the customs territory. As the seller includes the cost of transportation up to the port of arrival in the country of destination/import in its selling price, the transaction price should also more or less equal the (customs) value of the goods upon arrival in the customs territory of the country of destination for many countries.

To avoid inconsistency, the seller should agree on terms and conditions in the contract of carriage with the carrier in line with the assignment of obligations of the seller and the buyer regarding customs clearance under the CFR Incoterms® rule.

Question 9

Who is responsible for stowage and cargo securing?

The Incoterms® 2010 rules do not deal with the parties’ obligations for stowage and cargo securing and therefore, whenever relevant, the parties are advised to deal with this in the sale contract.

Whether the obligation of the CFR seller to hand over the goods to its carrier includes a liability regarding actually loading the goods and whether this ‘loading’ includes stowage and cargo securing, will depend on the customs of the port of shipment, the transport contract and the nature of the goods (see Question 1. How are goods handed over to the carrier?).

Question 10

What sort of transport document should be issued by the carrier?

The CFR Incoterms® 2010 rule stipulates that the seller must provide the buyer, at its own expense, with the usual transport document[s] for transport contracted to the named port of destination. This transport document must cover the contract goods and be dated within the period agreed for shipment. The document must also enable the buyer to claim the goods from the carrier at the named port of destination and, unless otherwise agreed, enable the buyer to sell the goods in transit by the transfer of the document to a subsequent buyer or by notification to the carrier. When such a transport document is issued in negotiable form and in several originals, a full set of originals must be presented to the buyer.

The carriage contracted by the CFR seller should cover the entire transport under a single contract, from the selected port of shipment all the way until the goods are presented to the buyer at the named port of destination.

Most international conventions for transport by sea and inland waterways require the carrier to deliver a specific transport document in respect of cargo received for carriage. This transport document serves as proof that goods have been taken into the custody of the carrier and as the place to note any reservations about the goods. In other cases, the transport document might be used in a way that only the holder of the transport document is entitled to claim the goods (such as with a negotiable Bill of Lading).

As a general principle, it is accepted that the CFR seller, being the contractual shipper on the bill of lading, is entitled to obtain the bill of lading from the carrier.

The transport document should record the apparent condition of the goods at the port where they are received by the carrier. The Incoterms® rules do not require the transport document to be ‘clean’,10 although this may be required for payment purposes.11 The document should be visibly and unequivocally dated and signed.

Unless obviously unnecessary, the document should include a clear undertaking to make the goods available to the consignee, subject to the presentation of one original in the case of a negotiable transport document.

Other documents:

If the seller asks the carrier to arrange for customs documents (invoices, packing lists, certificates of origin,…) the carrier is not obliged to do so. Whenever the carrier accepts this request, particular attention should be paid to these documents which are very much formalized, in particular to /the mode of transport, the goods, the applicable law and regulations and the status of the transport buyer and the carrier.

Note: In a CFR sale the seller makes the contract of carriage to the named port of destination but the goods are already delivered to the buyer when they are loaded on board in the port of departure. Any damage to the goods during transit will be for the buyer’s account. For this reason, the buyer has a strong and legitimate interest in ensuring that carriage is arranged in a manner that gives the buyer a direct line of communication to a carrier upon which it can claim and receive compensation for any loss or damage that occurs during transit.12

1
When discharging is part of the contract of carriage, the carrier’s liability (and its limitations) will normally also apply as regards the risk of damage to and loss of the goods during discharge.

2
Art. 38, 3 CISG

3
‘for the seller’s account under the contract of carriage’

4
Buyers are advised to include these additional costs when calculating the customs value (when applicable).

5
VATOS – ‘Valid at time of shipment’

6
An additional charge levied by the carrier to compensate for fluctuations in the price of the ship’s fuel. Also called bunker surcharge.

7
An additional charge levied by the carrier to compensate for fluctuations in the price of the applicable currency.

8
An additional charge for port security.

9
As well as transit formalities to the port of departure/delivery if any.

10
Bearing no notation of damage or shortage.

11
Art. 27, UCP 600.

12
Should no transport insurance have been contracted – in this situation the insurance company will normally claim with the carrier.