CFR і CIF

What does CFR (Cost and Freight) mean?

The name speaks for itself - "cost and freight": the organization and payment of sea transportation is the responsibility and obligation of the seller (it should be noted that insurance is not included in the cost).

Thus, the sender undertakes:

• preparation of goods for transportation,
• delivery to the port of departure,
• loading onto the vessel and payment for the sea voyage,
• preparation of export documents.

However, when choosing these terms, it is worth considering a key point: the risk for the goods passes from the seller to the buyer at the moment the cargo is loaded on board the vessel, even if the freight has already been paid by the sender, responsibility for possible risks, damage or loss during sea transportation falls on the buyer.

After the vessel arrives at the port of destination, the buyer independently:

• is engaged in unloading,
• import customs clearance,
• subsequent delivery of the cargo to the warehouse or final destination.

If it is important for the recipient to insure the cargo, he does it separately, at his own discretion. Therefore, such transportation conditions are more often chosen by companies that have experience in international logistics, and also prefer independent control of insurance and subsequent stages of logistics.

How CIF (Cost, Insurance and Freight) works

"Cost, Insurance and Freight" is essentially an expanded version of Cost and Freight, where another important element is added to the seller's responsibilities - insurance processing.

Under these conditions, the seller:

• prepares the cargo,
• organizes delivery to the port of destination,
• pays for the sea route,
• prepares export documentation,
• is responsible for loading the goods onto the vessel,
• additionally takes out an insurance policy that covers the risks of damage or loss of cargo during sea transportation.

It is important that the principle of transfer of risks remains unchanged: responsibility for the cargo passes to the buyer at the moment the goods are loaded onto the vessel, despite the fact that the seller arranges insurance. If an insured event occurs during transportation, the buyer can use this policy to compensate for losses.

Upon arrival of the cargo at the port of destination, the buyer is responsible for:

• customs clearance, payment of taxes and fees;
• delivery of the shipment further along the route;
• arranging additional insurance coverage if necessary, when the standard one is insufficient.

"Cost, Insurance and Freight" is often chosen by buyers who want to simplify the transaction and receive basic insurance protection without having to independently look for an insurance company at the shipping stage.

What is the main difference between CFR and CIF?

The main difference is the availability of insurance:

• with CFR, insurance of the goods is not the seller's obligation or responsibility,
• and with CIF, mandatory insurance by the sender is included in the delivery terms.

In everything else, they are similar: delivery is carried out by sea, the freight to the port of destination is paid by the seller, and the risk for the cargo passes to the buyer when the cargo is loaded onto the vessel.

That is why, when choosing transportation terms, it is important to understand in advance who will manage the insurance risks, as well as how convenient it is for the buyer to transfer this part of the responsibility to the seller.

At the same time, a clear understanding of the conditions and their differences allows:

• avoid controversial situations between the parties to the agreement;
• calculate logistics costs in advance;
• correctly distribute responsibilities and risks;
• build a transparent supply chain from sender to recipient.

This is especially true for international shipments involving different countries, ports, and process participants. Regardless of whether the cargo is shipped through the ports of the Black Sea, the Mediterranean, or Asia, correctly selected Incoterms terms simplify the interaction between all parties.

How CFR and CIF are used in practice

For example, when transporting cargo by sea to one of the European or Black Sea ports, the seller under CFR or CIF terms organizes and pays for the freight to the port of destination. The difference will be whether he arranges insurance or whether this task is left to the buyer.

In both cases, the recipient must take into account: responsibility for the cargo begins even before the start of sea transportation - at the moment the cargo is placed on the vessel. Therefore, a competent approach to choosing delivery terms directly affects the security of the transaction and financial risks.

Both options are quite convenient and understandable conditions for sea transportation, which are widely used in international trade. They help to clearly define the responsibilities of the parties, allocate costs and reduce the likelihood of misunderstandings.

The choice depends on who will be responsible for insurance coverage of the cargo and what level of control over logistics the buyer requires. But in any case, the correct use of Incoterms is the basis of efficient and predictable international logistics.