FOB vs CIF in Petroleum Trading: Who Pays for Shipping?

Two nearly identical diesel offers land on your desk. One says "FOB Houston $460/MT" and the other says "CIF Singapore $510/MT." Which is cheaper? At first glance, FOB looks $50 cheaper. But once you add the $40/MT shipping cost, $7/MT insurance, and factor in that you'll need to charter a vessel and coordinate everything yourself, suddenly CIF doesn't look so expensive. In fact, it might even be the better deal.

FOB and CIF are the two most common Incoterms (International Commercial Terms) in petroleum trading, and choosing between them affects far more than just price. It determines who handles logistics, who bears shipping risk, and how complicated your procurement process becomes. Understanding the real difference – and calculating total cost properly – is crucial for making smart buying decisions.

Quick Definitions

FOB stands for "Free On Board," meaning the seller's responsibility ends once they load the product onto a vessel at the origin port. From that point forward, you (the buyer) arrange and pay for shipping, insurance, and all logistics. You also bear the risk during transit – if the ship sinks, that's your problem.

CIF stands for "Cost, Insurance & Freight," meaning the seller's quoted price includes not just the product but also the cost of shipping it to your destination port and insuring it during transit. The seller handles all the logistics, charters the vessel, coordinates loading and delivery, and bears the risk until the cargo arrives at your specified port.

The One Thing That Matters

Everything else aside, here's what you need to know:

FOB: You handle shipping. Price looks lower, but add shipping costs.

CIF: Seller handles shipping. Price is higher, but it's all-inclusive.

Side-by-Side Comparison

Cost Comparison Example

Let's say EN590 diesel from Houston to Singapore:

FOB Houston: $460/MT

• Product cost: $460/MT
• Shipping you arrange: ~$40-60/MT
• Insurance you arrange: ~$5-10/MT
• Your total cost: $505-530/MT

CIF Singapore: $510/MT

• Product cost, shipping, insurance all included
• Your total cost: $510/MT

In this example, CIF is actually comparable or even cheaper because the seller has better shipping rates due to volume.

When to Choose FOB

FOB makes sense when you have the expertise and relationships to handle shipping more efficiently than the seller can.

Choose FOB if you have established shipping relationships that give you better freight rates than what's built into CIF pricing. Large buyers shipping regularly can negotiate volume discounts that beat one-off rates. If you want control over the shipping timeline and which carrier you use – maybe you have preferred vessels or specific routing needs – FOB gives you that flexibility. Experienced logistics teams can often save money by handling shipping directly. If you're consolidating multiple shipments from different suppliers onto one vessel, FOB lets you coordinate this efficiently. And if you can get better insurance rates through your broker than sellers typically include, FOB allows you to capitalize on that.

For example: You're a large buyer shipping 10,000 MT monthly. Your freight forwarder gives you bulk rates of $35/MT when spot rates are $45-50/MT. The savings justify handling logistics yourself.

When to Choose CIF

CIF is the smart choice for most buyers, especially those new to petroleum trading or buying smaller volumes.

Choose CIF if this is your first petroleum purchase and you don't yet understand the shipping complexities. If you don't have established shipping relationships with freight forwarders, charter brokers, and marine insurers, the seller's rates will likely beat anything you can arrange. When you want simplicity and one all-inclusive price without surprises, CIF delivers. If you don't want to deal with vessel charter, Charter Party Agreements, marine insurance, and logistics coordination, CIF eliminates all that hassle. For smaller volumes, sellers almost always get better shipping rates due to their regular business volume. And if you prefer the seller bears shipping risk until delivery, CIF transfers that burden to them.

For example: You're a new buyer ordering your first 5,000 MT trial shipment. You don't know freight forwarders, charter brokers, or insurance companies. CIF means you get one price, product arrives at your port, and you avoid all the shipping complexity.

The Hidden Complexity of FOB

FOB's lower advertised price comes with significant hidden complexity that new buyers often underestimate.

You need to find and negotiate with vessel charter companies or freight forwarders – and knowing who to trust isn't obvious when you're starting out. You'll deal with Charter Party Agreements specifying laytime, demurrage rates, and responsibilities. Marine insurance requires quotes, coverage decisions, and premiums that vary with routes and cargo types. Port coordination at the origin means working with the seller's terminal, scheduling vessel arrival, and managing loading operations remotely. Customs clearance falls on you, requiring proper documentation and potentially customs brokers. Demurrage risk becomes your problem if loading takes longer than the allowed laytime. And Bill of Lading arrangements need to be coordinated between you, the carrier, and the seller.

This isn't trivial work. It requires expertise, industry contacts, and time. If you don't have these, mistakes happen – missed vessel schedules costing thousands in demurrage, improper insurance leaving you exposed, or poor freight rates that eliminate any FOB savings.

The Simplicity of CIF

CIF flips all that complexity to the seller. You get one all-inclusive price covering product, freight, and insurance. The product arrives at your specified destination port – you just show up to receive it. You pay after arrival and verification, often with standard payment terms. And you completely avoid the shipping headaches, logistics coordination, and risk management that FOB requires.

Simplicity has genuine value, especially for new buyers. The time you'd spend learning vessel charter, the mistakes you'd make coordinating your first few shipments, and the stress of managing international logistics all disappear. You focus on verifying product quality and building your business instead of becoming a shipping expert.

Price Comparison Tip

Never compare FOB and CIF prices directly – you're comparing apples to oranges. Convert everything to the same basis first.

When comparing FOB to CIF, take the FOB price and add realistic shipping costs for your specific route (get quotes from freight forwarders). Add insurance at roughly 1-2% of product value. Now compare this FOB-plus-shipping total to the CIF price. You'll often find CIF is actually competitive or even cheaper once you properly account for all FOB costs. Sellers with regular shipping volume often get better freight rates than you can arrange for one-off shipments.

One Decision Rule for New Buyers

If this is your first 1-3 petroleum purchases, choose CIF. Simple as that.

CIF eliminates shipping complexity you're not ready to handle yet. You get one price with no surprises or hidden costs to discover later. The seller bears shipping risk, which is appropriate when you're learning. You can observe how the process works – tracking the vessel, seeing how documentation flows, understanding what verification looks like – without being responsible for coordinating it all. And once you've done a few transactions and built relationships with freight forwarders and insurers, you can switch to FOB if the economics justify it. Start simple, get sophisticated later.

Bottom Line

FOB looks cheaper but you handle (and pay for) shipping. Good for experienced buyers with shipping relationships.

CIF includes everything in one price. Good for new buyers or those who want simplicity.

Most new buyers should start with CIF. Once you understand the process and build shipping relationships, you can explore FOB for potential savings.

Don't choose FOB just because the price looks lower - calculate the true total cost including shipping before deciding.

Take Action

Submit an RFQ on CommoditiesHub and specify whether you prefer FOB or CIF terms based on your experience level and logistics capabilities. Our verified suppliers can quote both ways.