Legal Definitions - cost and freight

Cost and Freight (CFR or CF) is a widely used international shipping term in contracts for goods transported by sea or inland waterway. It clearly defines the responsibilities of both the seller and the buyer regarding the delivery, payment for shipping, and the crucial point at which the risk of loss or damage to the goods transfers from the seller to the buyer.

Under a Cost and Freight agreement:

• The seller is responsible for clearing the goods for export, arranging for their transportation by sea or inland waterway, and paying all the costs associated with shipping the goods to a specified port of destination.
• However, the risk of loss or damage to the goods transfers from the seller to the buyer once the goods have been loaded onto the vessel at the port of shipment (the origin port).
• This means that while the seller covers the cost of freight to the destination port, the buyer assumes responsibility for the goods' safety during the main sea journey. The buyer is also responsible for all costs and risks from the destination port onwards, including unloading, import duties, and any further transportation to their final location.

Here are some examples to illustrate how Cost and Freight works in practice:

• Example 1: Electronics Manufacturer and Overseas Distributor

  A South Korean electronics manufacturer sells a large shipment of televisions to a distributor in France, agreeing to a "Cost and Freight (CFR) Le Havre" contract. The manufacturer (seller) is responsible for packaging the TVs, clearing them for export from South Korea, and paying for the ocean freight to the port of Le Havre, France. However, once the televisions are safely loaded onto the cargo ship in Busan, South Korea, the risk of any damage or loss during the sea voyage transfers to the French distributor (buyer). If the ship encounters a severe storm and some TVs are damaged en route, the French distributor bears that financial loss, even though the South Korean manufacturer paid for the shipping to Le Havre.

• Example 2: Bulk Agricultural Commodity Trade

  An Argentine grain exporter sells a bulk quantity of soybeans to a food processing company in Egypt under a "Cost and Freight (CFR) Alexandria" agreement. The Argentine exporter (seller) arranges and pays for the shipment of the soybeans by vessel from Buenos Aires to Alexandria. The Egyptian company (buyer) becomes responsible for the soybeans the moment they are loaded onto the ship in Argentina. If, for instance, the ship carrying the soybeans is delayed significantly or suffers damage that affects the cargo before reaching Alexandria, the Egyptian company is responsible for dealing with the consequences and potential losses, despite the Argentine exporter having covered the freight cost to Egypt.

• Example 3: Industrial Machinery Import

  A Canadian construction company purchases specialized heavy machinery from a supplier in Germany, with the contract specifying "Cost and Freight (CFR) Vancouver." The German supplier (seller) is obligated to prepare the machinery for export, arrange for its transport across the Atlantic Ocean, and pay for the shipping costs to the port of Vancouver, Canada. The Canadian construction company (buyer) assumes the risk for the machinery once it is loaded onto the vessel at the German port. If the machinery is damaged during the ocean transit, perhaps due to improper securing or an accident at sea, the Canadian company is responsible for the repair costs or loss, not the German supplier, even though the supplier paid for the freight to Vancouver.