CIF vs FOB: Choosing the Right Incoterm for Your Petroleum Purchase

The Two Most Common Petroleum Incoterms

FOB (Free On Board) — Loadport

Seller delivers product on board the buyer's nominated vessel at the load port. Once the product crosses the ship's flange, risk transfers to the buyer. Buyer arranges and pays for: ocean freight, marine insurance, discharge port operations.

CIF (Cost, Insurance, Freight) — Discharge Port

Seller arranges and pays for: ocean freight to the named discharge port, and marine insurance covering the voyage. Risk still transfers to the buyer at the loadport (yes, even though seller pays freight — this is the most misunderstood point).

The Critical Risk-Transfer Confusion

Many first-time buyers assume CIF means the seller bears voyage risk because seller is paying freight. It does not. CIF is Cost + Insurance + Freight — the seller is paying those costs on behalf of the buyer, but title and risk transfer occur at the loadport flange.

This matters when: the vessel hits weather, the cargo contaminates en route, or the ship is detained for sanctions screening.

When to Choose FOB

• You have an in-house chartering team
• You hold marine insurance program at competitive rates
• You want full visibility into vessel quality (vetting, age, P&I cover)
• You buy regularly and benefit from chartering economies

When to Choose CIF

• You buy occasionally and lack chartering expertise
• The seller has freight rate advantages (term COA, fleet ownership)
• You want simplified pricing (per metric ton, delivered)
• The route is straightforward and uncontroversial

Variants Procurement Should Know

• CFR — Cost & Freight (no insurance — buyer arranges)
• DAP — Delivered At Place (risk transfers at discharge — closest to a true 'delivered' deal)
• DDP — Delivered Duty Paid (seller handles customs — rare in petroleum)

Practical Recommendation

For mid-sized buyers transacting <12 cargoes per year, CIF or DAP typically delivers better total cost. For high-volume institutional buyers, FOB with owned/chartered tonnage dominates on per-tonne economics over a 24-month horizon.