FOB or CIF: how to buy a wheat cargo

FOB: you arrange the ship

Under FOB, the seller delivers the wheat on board the vessel at the named load port and handles export clearance. The buyer charters the vessel, pays the ocean freight and arranges insurance if it wants cover.

FOB suits buyers with their own chartering contacts. They control the vessel and the freight cost, but must nominate a suitable vessel in time for the agreed loading period.

CIF: the seller arranges the ship

Under CIF, the seller also contracts the carriage to the named destination port, pays the freight and buys cargo insurance. Incoterms 2020 requires only limited cover under CIF, so a buyer who wants wider cover should ask for it in the contract.

CIF suits buyers who prefer one price delivered to their port.

The point buyers often miss

Under both terms, risk passes to the buyer once the cargo is on board at the load port. CIF does not mean the seller carries the risk during the voyage, which is why the insurance and the documents matter.

What to settle in the contract

• The named load port or destination port.
• The loading period and, under FOB, the vessel nomination.
• Loading and discharge rates, laytime and demurrage.
• Under CIF, the insurance cover.
• The inspection company and the place of sampling.
• The documents to be presented under the letter of credit.

How it works with a letter of credit

A bank pays against documents, not against the cargo itself, so the credit must match the chosen term. Under CIF the insurance document is usually part of the set; under FOB the seller does not provide one. Check the wording of the credit against the contract before it is opened.

Our main basis is FOB Russian port. CIF to the destination port is available by mutual agreement.