CFR and CIF Incoterms 2020: Who Pays and Who’s Responsible at Each Stage

This is Part 3 of ISOLUTION LOGISTICS’ Incoterms 2020 series. Part 1 covered EXW and FCA and Part 2 covered CPT and CIP. This part covers the two sea-only rules of Category C: CFR and CIF Incoterms 2020. Under both rules the seller pays the freight to the named port of destination, but the risk of loss or damage passes to the buyer as soon as the goods are on board the vessel at the port of shipment. CIF adds one duty: the seller must also buy insurance for the goods, with at least ICC (C) cover.

What Are CFR and CIF Incoterms 2020?

CFR (Cost and Freight) means the seller delivers the goods on board the vessel, or procures goods already delivered that way. The seller contracts and pays for the carriage to the named port of destination. The seller clears the goods for export but not for import.

CIF (Cost, Insurance and Freight) works the same way, with one extra obligation. The seller must also contract for insurance cover, at least ICC (C), against the buyer’s risk of loss or damage to the goods from the port of shipment to at least the port of destination.

CFR and CIF Incoterms 2020 may only be used for sea or inland waterway transport.

Where Cost and Risk Split in CFR and CIF Incoterms 2020

CFR and CIF Incoterms 2020 have two critical points, and they sit in different places:

• Cost point: the seller pays the freight up to the named port of destination.
• Risk point: the risk passes to the buyer when the goods are placed on board the vessel at the port of shipment.

So the buyer carries the risk during the sea voyage even though the seller paid for it. That is why the buyer needs to know whether insurance was bought (CIF) or not (CFR).

One more detail: if the seller’s contract of carriage includes unloading costs at the named port of destination, the seller cannot recover them from the buyer unless the contract says otherwise.

CFR vs CIF at a Glance

	CFR	CIF
Transport mode	Sea or inland waterway only	Sea or inland waterway only
Seller pays freight to destination port	Yes	Yes
Seller buys insurance	No	Yes, at least ICC (C)
Risk passes to buyer	On board the vessel at the port of shipment	On board the vessel at the port of shipment
Export clearance	Seller	Seller
Import clearance	Buyer	Buyer

In price terms, CFR equals FOB plus freight (CFR = FOB + F). CIF adds insurance on top of CFR.

Why Containers Should Use CPT or CIP Instead

CFR and CIF Incoterms 2020 only work when the goods are placed on board the vessel. Containers are usually handed to the carrier at a terminal, before they are loaded. Our training material sums this up in three pairs:

• FCA is more appropriate for containerized cargo than FOB.
• CPT is more appropriate for containerized cargo than CFR.
• CIP is more appropriate for containerized cargo than CIF.

For the container versions, read Part 2 on CPT and CIP.

Real-World Example: Reefer Container of Seafood from Da Nang to Los Angeles

Below, iSolution Logistics takes a real-world example based on shipments we have handled to illustrate how CFR and CIF work.

A seafood exporter in Da Nang sells a reefer container of frozen seafood to an importer in the United States. The port of shipment is Da Nang and the named port of destination is Los Angeles, so CFR and CIF Incoterms 2020 both fit the route: it is a sea shipment between two seaports.

If the contract says CFR Los Angeles: the exporter books the reefer container and pays the sea freight to Los Angeles. The exporter clears the goods for export, and the US importer handles import clearance. The importer buys its own cargo insurance, because the exporter has no insurance duty under CFR.

If the contract says CIF Los Angeles: the freight arrangement is the same, but the exporter must also buy insurance with at least ICC (C) cover from the port of shipment to at least Los Angeles. The exporter passes the insurance document to the importer with the other shipping documents.

Where the risk moves: in both cases the risk passes to the importer when the container is on board the vessel at Da Nang, not when it reaches Los Angeles. Until then the exporter still carries it.

A caution for containers: a reefer container is normally handed to the carrier at a terminal, before it is loaded on the vessel. As the section above explains, our training material therefore points to CPT or CIP as the more appropriate rules for containerized cargo. CFR and CIF are still what many buyers ask for, so it is worth agreeing exactly where the risk passes before the contract is signed.

Documents to Prepare

• Commercial invoice and packing list
• Bill of Lading (transport document supplied by the seller to the buyer)
• Insurance certificate or policy (CIF only)
• Export declaration (seller)
• Import or transit declaration (buyer)

How iSolution Logistics Can Help

• Customs procedures: we support consultation throughout customs and clearance procedures for goods.
• Cold chain cargo: handling cold chain shipments needs accuracy in customs procedures, tax settlement, certificates of origin (C/O) and regulatory permits. We provide professional services so goods are delivered on time, to the right destination, and at an optimal cost.
• Tracking: we monitor the transportation process to support safety and timely delivery.

Learn more on our Reefer Shipping, Multimodal Transport Service and Customs Brokerage & Clearance pages.

Frequently Asked Questions

Who pays for the sea freight under CFR? The seller, up to the named port of destination.

Who is responsible if the cargo is damaged at sea under CIF? The buyer carries the risk after the goods are on board at the loading port, and the seller’s insurance is there to cover the buyer’s risk.

Can CIF be used for containers? The rule is written for cargo loaded on board the vessel. For containers, CIP is the more appropriate rule.

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References:

• International Chamber of Commerce: Incoterms 2020 Rules

Keep Reading:

• Transit Cargo to Cambodia via Vietnam: Documents and Border Gates
• EXW and FCA Incoterms 2020: Who Pays and Who’s Responsible at Each Stage
• CPT and CIP Incoterms 2020: Who Pays and Who’s Responsible at Each Stage
• Cross-Border Infrastructure: Vietnam, Laos & Cambodia
• Cargo Seals Explained: Temporary Seals vs Official Carrier Seals in Container Shipping
• Differences Between Transit Cargo and Cross-Border Cargo?