What it means
CFR is one of the Incoterms, the standard set of trade rules that define who does what, who pays for what and where risk changes hands when goods cross borders. It applies only to sea and inland waterway transport, and the named place in a CFR quote is always a destination port rather than a warehouse or factory.
Writing "CFR Rotterdam" tells a supplier exactly how far its cost obligation runs. The split between cost and risk is the part that catches people out repeatedly.
The seller pays the ocean freight all the way to the destination port, yet the buyer carries the risk of loss or damage from the moment the goods are loaded on board at the origin. If the vessel is delayed or the cargo is damaged mid-ocean, the buyer bears the loss even though the seller paid for that leg.
For finance teams, the term drives revenue recognition and reported margin. Because control typically passes at loading while the seller's freight obligation continues, the freight element is usually treated as a cost of fulfilling the sale rather than a separate service the seller is still delivering.
Buyers often prefer CFR when they want the supplier to organise the main sea leg but insist on controlling insurance themselves, frequently because they already hold an open marine policy at a better rate than a one-off cover. Sellers like it because the quoted price looks complete and comparable to the buyer while their own risk still ends early.
The closest variant is CIF, which is identical except that the seller must also buy at least minimum insurance cover for the buyer's benefit. FOB is the step in the other direction, where the seller's cost and risk both stop once the goods are loaded and the buyer books the ocean freight.
In practice
Real-world examples.
Example
A furniture importer switches its main supplier from FOB to CFR terms so the supplier books the ocean freight and the importer stops managing carrier contracts on three trade lanes. The importer keeps insurance in-house under an annual open cover policy that costs less than the supplier's per-shipment quote.
Example
A chemicals exporter quotes CFR because its home port freight rates are cheaper than those its overseas customers can obtain. The quote looks more expensive line by line than an FOB alternative, but the customer's total landed cost is lower, which wins the contract.
Example
A machinery buyer receives a CFR shipment that was damaged by seawater in transit. Because risk passed at loading, the buyer claims on its own marine policy rather than against the seller, and the finance team is grateful it did not skip the $450 premium.
Formula
Calculation
CFR price = ex-works cost of goods + inland transport to the origin port + export clearance and documentation + terminal handling and loading + ocean freight to the named destination port.
A supplier quotes a container of components on CFR terms.
Ex-works cost of goods = $80,000.
Inland haulage from factory to port = $2,500.
Export clearance and documentation = $800.
Terminal handling and loading on board = $1,700.
Ocean freight to the destination port = $5,000.
CFR price = $80,000 + $2,500 + $800 + $1,700 + $5,000 = $90,000.
The buyer then adds the costs CFR does not cover. Marine insurance on the shipment is $450, and destination charges covering unloading, customs brokerage and inland delivery come to $1,200.
Buyer's landed cost before import duty = $90,000 + $450 + $1,200 = $91,650.
Comparing this with an FOB quote of $85,000 for the same goods shows the two are equivalent only once the buyer adds its own $5,000 of ocean freight, which is precisely why quotes must always name the Incoterm.Case study
Seen in the real world.
This illustrative case follows Halcyon Tools, a fictional distributor importing hand tools from three overseas suppliers. Two suppliers quoted FOB and one quoted CFR, and the buying team compared the headline prices directly. The CFR supplier looked 6% more expensive and was consistently ranked last.
A new commercial analyst rebuilt every quote on a landed cost basis. Once the FOB quotes had freight of roughly $5,000 per container added, the CFR supplier turned out to be the cheapest of the three by about $1,400 per container. The comparison had been wrong for two years because nobody had normalised the Incoterms.
The lesson prompted a small but permanent change. Halcyon Tools rewrote its request-for-quotation template to require every supplier to quote on the same CFR basis to the same destination port, and added a standing line for insurance and destination charges so buyers always compared total landed cost. Purchase decisions became faster as well as better, because no analyst had to reconstruct freight assumptions after the fact.
Watch out
Common mistakes.
- Assuming that because the seller pays the freight, the seller also carries the risk during the ocean voyage.
- Comparing a CFR quote directly against an FOB quote without adding the buyer's own freight cost to the FOB figure.
- Using CFR for a container moving by road, rail or air, when the term applies only to sea and inland waterway transport.
Questions
People also ask.
Who pays for insurance under CFR?
The buyer does, and because risk passes at loading the buyer should have cover in place before the vessel sails.
What is the difference between CFR and CIF?
They are identical except that under CIF the seller must also buy minimum marine insurance for the buyer's benefit, so a CIF price is normally a little higher.
Does CFR include import duty or destination handling?
No, customs duty, import clearance, unloading charges and onward inland delivery are all the buyer's responsibility.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%