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In International Contracts, time and place of delivery are the two most important clauses which determine the price quoted by the seller. Cost means the cost of manufacturing goods and Freight is a simple term. Freight refers to the cost of delivering the goods from the point of origin to the point of destination. Different term agreements lay down the different set of responsibilities on the buyers and sellers.
International Chamber of Commerce has defined 11 Incoterms and Cost, and Freight is one of these.
As the name indicates, a CFR type of arrangement makes the seller responsible for arranging for the transfer of goods to the point of destination. But an important point to note here is that the seller is not responsible for any loss or damage that happens during the transit. The seller has to provide the necessary documents to the buyer so that he can take the delivery of goods from the carrier.
In a nutshell, under CFR agreement, the seller has to deliver the goods to the destination point as mentioned by the buyer. It is only after the goods have reached the port, that the buyer assumes the risk and responsibility.
FOB (Freight On Board) requires the seller to deliver the goods at the point of origin, thus making the buyer responsible for any risk or loss that happens thereafter.
CFR (Cost and Freight) throws more responsibility on the seller because until the goods are not transferred to the point of origin, the seller is wholly and solely responsible. Unloading charges are to be paid by the buyer.
CFR is meant to dictate the terms of contracts which happen through the sea transport.
The seller has to cover up the minimum cost of insurance.
Seller:
Buyer: