Lesson 10 / 11 · sea and inland waterway only
CFR Cost and Freight
The seller loads the goods on board at the port of shipment and pays the sea freight to the named port of destination, but risk passes at loading — like FOB. No insurance obligation.
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Scenario
Copper concentrate shipped in bulk from Antofagasta to a Korean smelter (sea, dry bulk)
CFR Ulsan Incoterms® 2020
- Seller
- Copper miner, Antofagasta region, Chile
- Buyer
- Copper smelter, Ulsan, South Korea
- Transport
- Sea — dry bulk, Antofagasta → Ulsan
The seller, a copper miner in the Antofagasta region, Chile, sells 10,000 tonnes of copper concentrate to the buyer, a smelter in Ulsan, South Korea, under CFR Ulsan Incoterms® 2020. Transport is by sea in bulk: the seller charters a bulk carrier, moves the concentrate from the mine to the port of Antofagasta and loads it. The buyer insures the cargo, receives the ship at Ulsan, clears and discharges.
Illustrative scenario: companies are generic, and real contracts, carriers and countries add their own conditions.
The journey, stage by stage
Top bar: who pays for each stage. Bottom bar: who bears the risk of loss or damage. The red line marks where risk passes.
- Seller
- Buyer
- Depends on contract / carrier or port practice
- Point where risk passes
⚠ Risk passes on loading at Antofagasta, even though the seller pays the voyage to Ulsan.
- Pre-carriage to the departure terminal — Seller: Mine to port of Antofagasta
- Export clearance — Seller: Chilean export formalities
- Departure terminal handling and loading — Seller: Port storage and handling
- Lifting the cargo on board — Seller: Loading on the seller's chartered ship
- Main carriage — Seller: Sea freight Antofagasta → Ulsan
- Arrival terminal: unloading and handling — Depends: Discharge at Ulsan: per charter and contract terms
- Import clearance, duties and taxes — Buyer: Korean import clearance, duties and taxes
- On-carriage to the named place — Buyer: To the smelter
Who does what in this scenario
| Party | What they arrange / do | Who pays (them / what they pay) | Risk they carry | Key documents |
|---|---|---|---|---|
| Seller / exporter | Charters the ship, loads, pays the voyage, notifies the buyer and provides the transport document. | Mine-to-port, export formalities, loading, sea freight; discharge only if the charter includes it. | Until on board at Antofagasta. | Commercial invoice (often provisional for concentrate), bill of lading, weight and assay certificates. |
| Buyer / importer | Insures from loading, pays any discharge costs not in the freight, clears and receives. | Insurance, discharge (per terms), duties and taxes. | From on board at Antofagasta. | Bill of lading, import declaration, insurance policy. |
| Origin freight forwarder | The seller's shipping desk or port agent handles chartering and loading. | Seller. | Its own errors. | Loading reports. |
| Destination freight forwarder | The buyer's port agent in Ulsan. | Buyer. | Its own errors. | Discharge reports. |
| Ocean carrier (shipping line) | Carries the concentrate under the seller's charter. | Seller. | Per charter party and bill of lading. | Bill of lading. |
| Cargo insurer | No obligation. The buyer bears the voyage risk and should insure from loading; the seller must give it the information needed to insure. | Buyer. | Per policy. | Buyer's policy. |
| Customs broker (export) | Files the export declaration in Chile for the seller. Most countries require one; value thresholds, exceptions and export-control checks vary — ask the broker. | Seller. | Answers to its client for filing errors; the exporter stays responsible to customs. | Export declaration and release (proof of export). |
| Customs broker (import) | Classifies the goods, files the import declaration in South Korea for the buyer as importer, pays duties and import taxes on its account and obtains release. | Buyer. | The buyer remains responsible to customs as importer; the broker answers to it for its own errors. | Import declaration, duty and tax receipts, release. |
| Banks (letters of credit) | Documentary credits are common; payment is often provisional, adjusted later on final weight and assay. | As negotiated. | Documentary risk. | Bills of lading. |
| Terminals and ports | The ports at both ends store and handle the concentrate (a regulated bulk cargo). | Origin: seller. Destination: per terms. | Its own handling and storage. | Loading/discharge reports. |
✗ Common mistakes
- Buyer not insuring because 'the seller pays the freight'.
- Using CFR for containers handed over at a terminal (CPT fits better).
- Charter and sale contract disagreeing on discharge costs and laytime.
- Seller not giving timely shipment notice, so the buyer cannot insure.
? What to ask before you sign
- Your cargo insurer (Buyer) Can my cover start at loading in Antofagasta?
- The seller (Buyer) Does your freight include discharge at Ulsan?
- Your bank (Seller) How will provisional and final invoices work under the credit?
- Your customs broker (Buyer) Which duties apply, and does a trade agreement preference apply?
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