Incoterms® 2020 for Oil Product and Bitumen Cargoes: FOB, CFR, CIF and DAP in Practice

01 · Basics

"FOB" on its own is not a delivery term

Incoterms® rules are a set of eleven three-letter trade terms published by the International Chamber of Commerce. Each rule tells the seller and the buyer where the seller delivers the goods, where the risk of loss or damage passes, who arranges and pays for carriage and insurance, who clears the goods for export and import, and which costs fall on which side. They apply only when the contract incorporates them. A quotation that says "USD per MT FOB" leaves at least three questions open: FOB which port, under which edition, and on what terms for everything the rule does not cover.

The working formula is the rule, then the named place, then the edition. "FOB [named port of shipment] Incoterms® 2020" and "CFR [named port of destination] Incoterms® 2020" are complete. Older editions such as Incoterms 2010 are still usable if both parties name them, but their wording on costs, security and insurance differs, so the edition has to be in the contract and in the L/C, not assumed.

Incoterms do not transfer ownership, fix the price, set the payment method or decide what happens when a party breaches. They do not define how quantity and quality are finally established, and they say nothing about laytime and demurrage. Those points belong in the sale contract. Bitumen and oil product disputes usually start in exactly those gaps.

Sources [1][2]

02 · Risk and cost

Where the risk passes and where the costs pass are not always the same place

Four maritime rules matter most for liquid and drummed petroleum cargoes: FAS, FOB, CFR and CIF. They are reserved for sea and inland waterway transport. Seven further rules (EXW, FCA, CPT, CIP, DAP, DPU and DDP) work for any mode, including container shipments that start at an inland depot.

Under FOB the seller delivers by placing the goods on board the vessel nominated by the buyer at the named port of shipment. The risk and the cost of carriage both pass at that point. Under CFR and CIF the seller also delivers on board at the port of shipment, so the risk passes there too, but the seller must contract and pay for carriage to the named port of destination. Under CIF the seller must also buy cargo insurance for the buyer's benefit. A CFR buyer therefore carries the sea risk on a voyage the seller arranged and paid for. That buyer should hold its own cargo insurance from the loading port.

Under DAP the seller delivers when the goods are placed at the buyer's disposal on the arriving means of transport, ready for unloading at the named place of destination. The seller carries the risk for the whole voyage, and the buyer unloads and clears the goods for import. DPU adds unloading by the seller. DDP adds import clearance and duties, which is rarely practical for a foreign seller of petroleum products.

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03 · Packing and mode

Bulk tankers and drummed containers need different rules

Bulk bitumen moves in heated tankers from shore tanks to a heated receiving terminal. The goods cross the ship's manifold, the seller loses control at loading, and FOB, CFR and CIF fit naturally. The named port should be followed by the terminal or berth where the port has several.

Drummed bitumen moves differently. In the files PentaBay has reviewed, drums were filled, cooled and trucked to a warehouse or terminal, then stuffed into 20-foot containers at about 110 drums per box, in two tiers. The containers were sealed, handed to the line at the container yard and moved CY-CY under a bill of lading marked "shipper's load, count and seal". By the time the containers are on board, the seller has not controlled the cargo for days.

ICC's guidance notes for FOB, CFR and CIF warn that these rules may not suit goods handed to a carrier before they are on board, as is typical for containers. FCA, CPT and CIP put the risk point at handover to the carrier. That matches the moment the seller loses control. If a bank needs an on-board bill of lading under an L/C, FCA in the 2020 edition lets the parties agree that the buyer will instruct its carrier to issue an on-board bill to the seller.

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04 · Named place

Name the place where your responsibility really ends

Many bitumen buyers are not at the port. A road contractor may sit several hundred kilometres inland, or in a landlocked country served through a neighbouring port. A bill of lading can show the discharge port as the place of delivery and add the onward inland route "for account and risk of merchant". In that structure the carrier's contract ends at the port, and so do the CFR or CIF seller's obligations.

If the buyer needs the goods delivered to an inland depot, the contract should say so with a rule that works for multimodal transport, such as CPT, CIP or DAP [inland place]. If the buyer will take over at the port, CFR or CIF [port] is enough. The buyer then budgets separately for port charges, transloading, transit documents and trucking. Either way, the named place in the contract, the place of delivery on the transport document and the place stated in any L/C should be the same words.

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05 · Quantity and quality

Incoterms pays for checking, not for deciding who was right

Each 2020 rule makes the seller pay for the checking operations needed to deliver the goods, such as checking quality, measuring, weighing and counting. Export-related inspection that the authorities of the country of export require sits with the export clearance obligations. An independent inspection the parties choose for themselves, such as a load-port survey by SGS, Intertek or another company, is a commercial arrangement. The contract has to say who appoints and pays for it and whether its result is final.

For bulk cargo, write whether quantity is taken from shore tank figures or ship figures at loading, and which tolerance applies. For drummed cargo, write the net fill per drum and its tolerance, how drum tare is established and whether weighbridge records of loaded trucks or containers are acceptable. In one shipment file PentaBay reviewed, the drum marking stated net weight 180 kg with a tolerance of plus or minus 3 kg. The surveyor sampled during stuffing under the bituminous-materials sampling standard, but could reach only the top of the drums. Composite samples went to an outside laboratory, and retained samples were kept for 90 days. Those details decide whether a later quality complaint can be tested.

A common split is: load-port inspection at the seller's cost and final for quality and quantity, with the buyer entitled to a discharge-port inspection at its own cost for information only. The opposite split, with discharge-port results final, is common when the buyer pays after arrival. Choose one, write it down, and make the L/C document list match.

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06 · Insurance

CIF insurance is a minimum, not a recommendation

Under CIF in the 2020 edition the seller must obtain cargo insurance that complies at least with Institute Cargo Clauses (C) or similar clauses, unless the parties agree otherwise. Under CIP the minimum rose to Institute Cargo Clauses (A). The insurance must cover at least the contract price plus 10 per cent, which is 110 per cent, in the currency of the contract. It must also let the buyer claim directly.

Institute Cargo Clauses (C) cover named major casualties such as fire, stranding, sinking and collision. Clauses (A) cover all risks of loss or damage subject to listed exclusions. Drummed bitumen is exposed to handling damage, leaking drums and partial loss that (C) cover may not answer. A buyer that cares about these risks should ask for Clauses (A) in the contract or buy its own cover. War and strikes cover is separate and has to be requested.

Sources [1][5]

07 · Laytime and demurrage

Write the time terms that Incoterms does not contain

Incoterms do not mention laytime or demurrage. When a CFR or CIF seller charters the vessel, the charter party sets laytime and the demurrage rate between the seller and the shipowner. The seller will want the buyer to carry the time spent at discharge. That obligation exists only if the sale contract says so.

The clause should state the laytime allowed at discharge, when it starts (notice of readiness and any turn time), what does not count (shifting, bad weather, terminal breakdowns), the demurrage rate or the rule linking it to the charter party, and a deadline and document list for claims. For container cargo, the equivalent exposure is container demurrage and detention charged by the line after the free days. Name the free days and who pays beyond them.

Sources [2]

08 · Documents

Make the contract, the L/C and the bill of lading say the same thing

Banks examine documents, not cargoes. If the contract says "CIF [port] Incoterms® 2020", the L/C should name the same rule and place, and call for an insurance document showing the agreed clauses and 110 per cent cover. The bill of lading should show the same port of discharge, and the invoice the same rule. A CFR contract with an L/C asking for an insurance document, or an FCA contract with an L/C demanding a marine bill showing "freight prepaid", creates discrepancies before the cargo moves.

Agree the bill of lading type as well. An original bill in a set of three, a sea waybill, a surrendered bill and telex release give the buyer different levels of control. For documentary payment, the rule, the transport document and the bank's requirements have to be chosen together.

Sources [1][6]

09 · Checklist

Before you sign the delivery clause

Use the list below on every quotation and draft contract. Each item is a question the rule itself will not answer.

• Rule, named place (port and terminal, or yard or depot) and edition written in full: "[Rule] [place] Incoterms® 2020".
• Rule chosen to match the packing and the point where the seller loses control (bulk on board, or drums at the container yard).
• Named place matches where the buyer actually takes over; inland legs priced separately or covered by CPT, CIP or DAP.
• Quantity basis written down: shore or ship figures for bulk; net fill, tolerance and tare basis for drums.
• Inspection company, sampling point, who pays, and whether load-port or discharge-port results are final.
• Insurance clauses (A) or (C), 110 per cent cover, currency, war and strikes cover, and who holds the policy.
• Laytime, notice of readiness, exceptions and demurrage rate, or container free days and detention.
• Payment terms and the L/C or SBLC document list cross-checked against the rule, the place and the transport document.
• Bill of lading type and number of originals agreed with the buyer's bank.

Illustrative delivery clauses

Wording patterns for discussion. Bracketed items are placeholders; adapt with counsel to the actual transaction.

Examples only. They do not describe terms PentaBay offers on any current cargo.