In the logistics industry, two types of transportation come into the picture. These are the terms that are used in legal terms. The two types of transportation include C&F which is also known as CFR. C & F stands for Cost and Freight.
The other type of transportation that usually you will see is the FOB. It stands for Free on Board. Sometimes, it’s also referred to as fright on Board.
These are the two terms used that decide who will pay for the shipping cost and which party is responsible for the shipping and other financial aspects of the goods.
To begin with, Cost and Freight or CFR is where the origin party which is the seller is responsible for all the costs of the product till it reaches the destination port. In simple words, the sender will cover all the financial aspects of the goods starting from their warehouse till the ship reaches the destination port. Once the goods are offloaded and they have reached the destination port (of the buyer), the buyer is responsible for the rest of the things.
The documents are the responsibility of the seller. When the goods are offloaded at the destination port, everything is transferred to the buyer. In most cases, the insurance cost of the ship is not paid by the seller. To cover the insurance cost, there is another term used called CIF. CIF stands for Cost, Insurance, and fright. Here, the seller is reasonable for taking the insurance of the goods during the transport.
As it increases the responsibility of the seller, most of the sellers will prefer to go with the CFR where they only need to cover the freight and costs.
On the other hand, Free on Board is a bit different. It takes out most of the responsibilities from the seller. When it comes to FOB, the seller is only responsible till the goods entered the vessel. Yes, in terms of FOB, the seller is only responsible for the goods till it enters the ship.
Once the goods are onboarded on the ships, the seller is not responsible for anything. The buyer takes responsibility from here.
By responsible, we mean with the financial terms. So, if something happens to the goods after it’s loaded on the ship, the seller is not responsible for any of these costs. The buyer will pay for all the costs including the shipping cost of the goods.
So, the seller is free from all the responsibilities. The papers and documents of the shipping are maintained by the buyers. Therefore, the seller is free from all these things. The buyer arranges for all the other costs. These are the terms used for the contracts and legal perspective.
All the documents that are to be submitted will use these terms for the transportation and determine who is financially responsible for the goods.
You Can Step Up in C&F Transportation Business
When it comes to the transportation business, you can always go with the C and F transportation business. If you see it from the top view, it will make more sense to get the FOB business instead of starting a CFR. However, the buyer wants to go with the businesses that offer C and F. in this way, the company is taking the responsibility for the goods and the buyer will have to take less responsibility for the goods.
As the insurance is not paid by the seller (in this case, you), you will be a lot freer than others. Further, it gives you more responsibility and for the same reason, you will also earn more money. when there are more responsibilities on the seller, you can charge more.
It will not only invite more sales but you will also get more money from the buyer since you are covering all the things for them. Therefore, you can always start your transportation business with the CFR method.
It’s usually used in international goods and transport. Therefore, you can surely send your goods from your own country and the buyer will be responsible when they reach their destination. Therefore, it’s quite easier to get started.
Final Words
To conclude, this was all about CFR and FOB, you can easily get started with the CFR and make your business bigger. You can surely hire a team that manages your documentation part. In this way, you can easily take out half of the burden from your shoulder.
It’s important to have the right transport management software and the right people who will help you with your transportation business. You will also have to ensure that you have the right marketing team who will help you get started. So, you can surely start with Cost & Freight.
Rishit Bhatt is a content strategist and a professional writer with a keen interest in technology and tech-enabled businesses. He aims to help businesses integrate tech into their on-premises infrastructure with technical documentation and helpful articles.