Why New Importers Dread Using CFR Terms!

Unveiling the Challenges

In the vast and dynamic world of international trade, importers often find themselves amidst a sea of trade terms, each with its own set of advantages and challenges.

While CFR (Cost and Freight) terms are commonly encountered, they may not always be your preferred choice when selecting an incoterm to use when importing cargo. In this blog, let's explore why you might have reservations about using CFR terms and the unique hurdles you may encounter along the way.

• Limited Control Over Shipping:

As an importer who values efficiency and reliability, you likely prefer trade terms that offer you more control over the shipping process. With CFR terms, the responsibility of arranging transportation to the port of destination lies with the seller, limiting your ability to choose carriers or shipping routes. This lack of control can result in delays or inefficiencies in shipping, which can understandably be frustrating for someone like you who values smooth operations.

• Uncertainty About Transportation Costs:

While CFR terms encompass sea transportation expenses, they do not incorporate destination charges, which are not included in your supplier's package. When you travel by air for an overseas trip, you pay the airline for the flight, which includes your journey to the country, airport facilities, baggage claims, and customs. However, in shipping, the scenario is different when you are charged for freight. The freight charge only covers the port-to-port transportation of your cargo on the ship, excluding handling after arrival at the destination port. You are accountable for additional expenses such as the unloading of your cargo from the port, customs clearance, unpacking at the facility, and delivery to your address. This can complicate budgeting as the total cost remains uncertain until your cargo is on its way to the destination port and you have minimal control over what you are charged.

• Increased Risk Exposure:

When you use CFR terms, once your goods are loaded onto the ship, the risk of them getting lost or damaged becomes your responsibility. This might make you feel uneasy, especially if you're not confident about how reliable the shipping process is or if your goods might get damaged along the way. And if something does go wrong during transit and your cargo gets damaged, figuring out who's to blame can be really tough. It's just one more headache in an already stressful situation.

• Complex Logistics and Documentation:

You depend on your supplier's agent to comprehend New Zealand's MPI regulations. If your supplier's agent is not familiar with these rules, it could cause substantial delays in your shipment and lead to expensive costs. Dealing with international shipping, customs, export documents, and import rules can feel overwhelming. It can take up a lot of your time and resources, which can make CFR terms an unattractive choice.

Honest review:

Most new importers find themselves confused when trying to understand incoterms like CFR.

When importers receive a CFR quote, there's a widespread misconception that paying the supplier for the freight charge ensures that the goods will be delivered directly to their doorstep. In truth, freight charges only encompass the transportation of goods from one port to another, not all the way to the final destination. Upon arrival at the destination port, importers often encounter unforeseen destination charges, leading to confusion as they were not prepared for these additional costs.

Incoterm Complexity level - Hard to understand

Cost compared to other incoterms: High

Final thoughts: If you are a first-time importer and have never used CFR terms before, I would recommend staying well clear of using this term. The total you are invoiced is usually a lot higher than other incoterms like EXW. The marine insurance aspect is tricky to navigate, and you receive multiple invoices from different entities, which can get confusing. If you prefer a simpler incoterm, I suggest taking a look at our blog on EXW terms.