CFR & CIF Delivery term | CFR & CIF incoterm

There are 11 incoterms as per Incoterms® 2020, some of them are frequently used in international trade, those terms are Ex-works, FOB, CFR & CIF.

We have written a separate article on Incoterms® 2020, click here if you want to know about all incoterms in detail.

For Ex-works there is a dedicated article available, you can click here to read that as well.

In this article we will discuss on delivery terms which are commonly used in international trade, CFR  & CIF.

CFR:
CFR is also known as C&F or CNF.

Break up: CFR = Cost + Freight

There are mainly 3 components of invoice value: (FOB value/cost + Freight + Insurance)
In case of CFR two components are involved Cost & Freight.

That means in case of CFR seller  manufacture finished goods, pack those, arrange custom clearance at origin, arrange Freight and arrange loading into the vessel.
Seller's responsibility ceases once goods are onboarded. After that it is buyer's responsibility. Buyer insure the goods in case of CFR.


Let's understand CFR with an example.

Let's assume a buyer received a FOB quotation for some goods which he wants to buy/import.
But buyer doesn't want to get involved in freight operations and they want to buy the goods with freight (prepaid). But their company has group insurance policy so he wants to take care of insurance part.

This price is called as CFR price as it includes cost and freight.

CIF:
Break up: CIF = Cost + Insurance + Freight

CIF is same as CFR, the only difference is in this case arranging insurance is responsibility of seller.
So in case of CIF seller arrange freight as well as insurance, remaining everything is same as CFR.

CIF price includes cost, freight & insurance.


So after request for quotation (RFQ) seller sends the quotation of the goods including ocean freight in case of CFR or including ocean freight and insurance in case of CIF.

Buyer compares the price with other sellers/suppliers quotations and finds the price is good enough in comparison to others, they accept the offer and issue Purchase order.
Seller also issues the sales contract with incoterm CFR or CIF as agreed.

Seller start manufacturing of the goods and share lead time and approximate sailing date with buyer.
It is not necessary that seller and manufacturer are same every time, sometimes seller can be a trader who sources the goods from somewhere else and export. In this case seller will procure the goods from local market.

Simultaneously seller contact freight forwarders for quotation of Ocean freight and other charges.
They also contact CHA for clearance of cargo.

CHA:
In most of the cases if seller is a regular exporter they already have CHA who takes care of their all shipments and charges as per annual contract rates.

Freight forwarders:
Some regular exporters who have more volumes they have signed contract with one or two forwarders with a fixed price for 3 or 6 months. The contract gets renewed or extended mutually depending on freight costs.
Some exporters who have comparatively less volume or have seasonal business usually they have contact with multiple forwarders, and float freight enquiry when it is required and select the offer with least ocean freight.

Freight forwarder approaches shipping lines/ airlines and books containers/space as required.
There is a dedicated article on container booking and execution, click here to read that article.

Insurance:
There are many government and private insurance agencies available who provide various insurance services, transit insurance is one of those services.
Exporter approaches one of those agencies for transit insurance and buy a policy as per the requirement.

Operation:
Once cargo is packed and ready for dispatch and containers are booked, exporter contact their CHA and freight forwarder. Cargo is sent to nearest CFS or ICD, CHA arranges all permissions from customs and prepare documentations as per the requirements.
Once cargo is taken inside of CFS or ICD forwarder provides empty containers for stuffing, after stuffing cargo is presented to custom officer for inspection, if everything found satisfactory custom officer issues clearance after completion of necessary documentation and shipping bill is issued.
After completion of customs clearance containers sent to the port/airport. Once containers arrived at port/airport last phase of documentation happens, CHA approaches custom officers at port/airport and arrange final clearance.

In some cases exporter has permission of factory stuffing. In this case empty containers are sent to exporters premises and stuffing takes place there and containers are sealed in presence of central excise officers. After completion of documentation, documents are also sealed in a cover, sealed containers and documents are sent to port where process takes place and clearance gets completed.

Once containers are taken inside port/Airport cargo console and custom documentation process is completed operational works for exporters and CHA are over. From this point shipping liner or airline agencies takes care of further operations like loading of containers into vessels or flights, They also completes documentations like mates receipt issuance and signing on other vessel related documents (from captain of the vessel), EGM closing (at customs) etc.

Post Shipment documents:
Post shipment documents are the most important part of export shipments, without these documents the cargo can not be cleared by importer at destination country.
There is a dedicated article on Post shipment documents/ export documents, click here to read that article.

Once containers are handed over to liner at port exporter or their CHA and freight forwarder approaches different offices for various certificates or documents.
Forwarder coordinates with liner and gets Bill of lading (B/L) issued.
Exporter or CHA on behalf of exporter approaches Chamber of Commerce for Certificate of origin (non-preferential), for preferential certificate of origin or free trade agreement certificate they have to approach export inspection councils or other authorized agencies.
If the cargo is plant product Phytosanitary certificate to be issued by Plant and quarantine or any other similar government department (depending on the country of export).
If pre shipment inspection done then inspection agency will issue inspection certificate.

Once all required documents are collected exporter/seller will send those documents to importer/buyer as per agreed payment terms.
There is a dedicated article on International payment method or international payment terms, click here to read that article.

In case of CFR exporter's/seller's responsibility ends once containers are loaded into vessel and all Post shipment documents are sent to importer/buyer. But in cases of CIF exporter/seller held responsible until cargo is arrived at port of destination.

After arrival of cargo/containers at port of destination it is importer's/buyer's responsibility to clear the cargo and get it at their premises.

Check other articles for more information:

EXW (Ex Works)
CPT (Carriage paid to)
FCA (Free Carrier)
FAS (Free alongside ship)
FOB (Free on Board)
CIP (Carriage & Insurance paid to)
DPU (Delivered at place unloaded) – This is new incoterm introduced in 2020
DDP (Delivered Duty Paid)
DAP (Delivered at Place)
History of Incoterms
Incoterms® 2020
Classification of Incoterms® 2020