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1. CFR – Cost and Freight
• The seller is obligated to transport the goods to the designated destination port and pay for the sea freight.
• Insurance for the goods until the destination is the responsibility of the buyer.
• Point of risk transfer: After the goods are delivered on board the ship at the port of origin.
Advantages:
• For the seller: No insurance responsibility and only committed until delivery on the ship and payment of freight.
• For the buyer: Can obtain insurance from preferred companies with more suitable terms.
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2. CIF – Cost, Insurance and Freight
• Similar to CFR, except that the seller is required to procure cargo insurance (minimum coverage) up to the destination port.
• The point of risk transfer remains at the port of origin and when loading on the ship.
Advantages:
• For the buyer: Peace of mind from insurance coverage (although usually minimal).
• For the seller: More control over the entire transportation chain and the ability to include insurance costs in the selling price.
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Under what conditions might a seller accept CFR but be unable to execute CIF?
1. Lack of access to an international or reputable insurer:
In some countries or specific circumstances, the seller may be unable to obtain an acceptable international insurance policy.
2. High insurance costs for the seller:
Due to sanctions, high risk, or geographical location, insurance rates for the seller may be prohibitively expensive, while the buyer may be able to procure insurance under better conditions.
3. Lack of experience or administrative resources to manage insurance:
A seller who is new to exporting may not have the tools or expertise necessary to negotiate insurance contracts.
4. Legal or banking restrictions:
Some domestic regulations may hinder the ability to pay for or issue international insurance policies for the seller.
