Cost and Freight & Cost, Insurance, and Freight
This article is part of our weekly blog series on the Incoterms® Rules — we will be looking at a new term every Tuesday
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.
➤ 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:
➤ 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.
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.
The ICC has provided a very helpful illustration of Incoterms® that you can download here for free. It shows how in working down the list of trade terms, risk progressively changes from the buyer’s responsibility to the seller’s responsibility.
Incoterms® consists of a total of 11 trade terms, which are divided into two groups.
Group 1 consists of terms that can be used for any mode of transportation:
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 advises 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.