CFR and CIF
This article is part of our blog series on the Incoterms® Rules, helping importers and exporters understand international trade terms. Find the entire series here.
Cost and Freight (CFR) and Cost, Insurance, and Freight (CIF) are the last two trade terms of the total 11 Incoterms® Rules, and apply only to sea and inland waterway transport.
Under CFR and CIF, the seller assumes the costs of loading the goods onto the vessel for departure, as well as cost of carriage to the port of destination. Risk, however, transfers to the buyer once the goods are loaded onto the vessel — not when the goods arrive at the port of destination.
Note: when contracting under C and D terms where the freight and/or insurance are non-dutiable charges, (and when the importer of record is not being invoiced for insurance or freight on a separate invoice), it is important that the invoice clearly shows what the freight and insurance costs were so that they can be properly deducted from the transaction value.
“I see situations where shipments are bought on CIF terms, but insurance and freight aren’t broken out itemized on the invoice – either the buyer hasn’t asked that they be itemized or the shipper has refused to itemize these items on the invoice – so the end importer ends up paying more duties than necessary.” – Jason Combs | VP of Indiana Operations @ C J International
The Difference between CFR and CIF
The difference between these terms is that under CIF, the seller is also obligated to obtain a certain level of insurance, covering loss or damage to goods until they arrive at the destination port. For further details on insurance requirements, and how these requirements differ from the previous version of Incoterms® Rules, please consult the ICC’s website:
Note: all parties should make sure they understand the insurance requirements of the destination country, and whether insurance must be purchased locally or not. This will affect what trade term can apply to the shipment, as it will determine whether the seller can be responsible for insurance coverage.
Example of Cost and Freight & Cost, Insurance, and Freight
The buyer is a home goods store based in Miami, FL, purchasing $8000 in ceramic dinnerware from a manufacturer in Portugal. If the goods are shipped CFR Miami, the seller must arrange loading of the goods onto the vessel, and carriage to the Port of Miami (as determined by the buyer). If damage or loss occurs after the goods are loaded, during the voyage, this risk falls on the buyer. If the buyer wants the seller to purchase insurance coverage for the goods until they arrive safely at the Port of Miami, they should ship the goods CIF.
More Resources on the Incoterms® Rules
The International Chamber of Commerce (ICC) has provided a very helpful illustration of Incoterms® Rules that you can download for free. It shows how in working down the list of terms, risk progressively changes from the buyer’s responsibility to the seller’s responsibility.
The Incoterms® Rules consist of 11 trade terms, which are divided into two groups.
Group 1 consists of terms that can be used for any mode of transportation:
- EXW Ex Works
- FCA Free Carrier
- CPT Carriage Paid To
- CIP Carriage and Insurance Paid To
- DPU Delivered at Place Unloaded
- DAP Delivered at Place
- DDP Delivered Duty Paid
Group 2 consists of terms that apply to sea and inland waterway transport only:
- FAS Free Alongside Ship
- FOB Free on Board
- CFR Cost and Freight – today’s topic!
- CIF Cost, Insurance, and Freight – today’s topic!
This blog series is intended to be a helpful introduction to international trade terms, not a comprehensive resource. C J International recognizes that the ICC is the only official source of definitions and explanations surrounding the Incoterms® Rules, and encourages our clients and the shipping community to consult iccwbo.org and their educational materials for further details.
Incoterms® and the Incoterms® 2020 logo are trademarks of ICC. Use of these trademarks does not imply association with, approval of or sponsorship by ICC unless specifically stated above. The Incoterms® Rules are protected by copyright owned by ICC. Further information on the Incoterms® Rules may be obtained from the ICC website iccwbo.org.