What is the difference between CFR and CIF Incoterms?
Cost, Insurance, and Freight (CIF) and Cost and Freight (CFR) are two Incoterms created by the ICC and last updated in 2020. CIF and CFR are used in sea freight shipping to standardise and ease international trade. Learn more about insurance, liability, and other differences between CFR and CIF and find the best option to import or export your cargo.
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Differences between CFR and CIF
The main difference between CIF and CFR shipping terms is insurance. On both CFR and CIF shipping terms, the risk of the cargo transfers from seller to buyer once the goods are loaded on the selected vessel at the port of origin, but under CIF, the seller must purchase insurance for the cargo. Under CFR, neither the seller nor the buyer is obligated to add insurance. The buyer may opt for insuring cargo according to their needs, though it is optional.
In other aspects, CFR and CIF are similar. Both CFR and CIF Incoterms 2020 are reserved for maritime and inland waterway cargo. The seller is responsible for packing the cargo, clearing it for export and covering all domestic transport and international freight charges.
Read more:
CFR vs CIF – Pros and cons of each Incoterm
Advantages and disadvantages of shipping with CFR
For the buyer:
The buyer may opt for the CFR Incoterm to have better control over the insurance. Since the insurance is not included in the CFR price, the buyer is responsible for purchasing insurance and may opt for an extended liability. That means a higher price and responsibility for the buyer. Still, in case of a good deal with an insurance company, it may be cheaper and safer to ship under the CFR Incoterm than under CIF.
For the seller:
It is easier for the seller to ship under the CFR Incoterm, as they have fewer responsibilities compared to CIF. The transfer risk occurs at the exact moment when shipping under CFR, but there is no responsibility to insure cargo.
Advantages and disadvantages of shipping with CIF
For the buyer:
When shipping under CIF, the main advantage for the buyer is insurance and freight costs covered by the seller. However, mandatory insurance is based on minimum coverage. If the provided insurance is insufficient, the buyer may purchase additional insurance. Also, in case of damage, the claim process may not be easy and take some time.
For the seller:
With CIF Incoterm, the seller is fully responsible for cargo and bears all the costs until the shipment reaches the named port of destination. Thus, the seller has more responsibility than with CFR Incoterm but more flexibility in choosing a carrier and insurance option. If they acquire cheap insurance, the seller can charge a higher price to the buyer.
CFR vs CIF Incoterms: customs
CFR and CIF have the same point of responsibility transfer, which means the customs clearance procedure will be similar:
- The seller is responsible for clearing cargo for export, including any documentation, costs, and customs taxes.
- The buyer is responsible for all the import procedures, including documentation and taxes.
CFR vs CIF comparison: a summary
| CIF | CFR | |
|---|---|---|
| Type of transport | Maritime and inland waterways cargo | Maritime and inland waterways cargo |
| Packing and inspection | Seller | Seller |
| Export duties | Seller | Seller |
| Transport to the port of origin | Seller | Seller |
| Loading the goods on the named vessel | Seller | Seller |
| Freight charges | Seller | Seller |
| Import charges | Buyer | Buyer |
| Unloading and handling at arrival at the named place | Buyer | Buyer |
| Domestic transport to the named destination | Buyer | Buyer |
| Risk transfer | Once the goods are loaded on the selected vessel at the port of origin | Once the goods are loaded on the selected vessel at the port of origin |
| Insurance | Mandatory. Purchased by the seller | Non-mandatory |
Want more information about Incoterms?
As you can see, there is one main difference between CIF and CFR shipping terms, but it can be crucial when choosing the right Incoterm for a freight contract. We recommend exporters and importers read our complete Incoterms for a better understanding of the topic:
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