Incoterms for Petroleum Cargoes: FOB, CFR, CIF and DAP Explained

October 22, 2026

Every petroleum cargo is sold on an Incoterm, and the term decides who arranges the ship, who pays the freight, who insures the cargo and — most importantly — where the risk passes from seller to buyer. Four terms cover most of the trade: FOB, CFR, CIF and DAP. They sound similar, but the difference between them is the difference between a smooth discharge and a dispute over who owns the loss.

This guide explains what each term transfers, in the order a buyer is likely to meet them, and where the hidden costs sit.

FOB — Free On Board

Under FOB, the seller delivers the cargo on board the vessel nominated by the buyer at the named loading port. The seller clears the cargo for export and bears the cost and risk until the goods are on board. From that moment, the buyer bears everything: freight, insurance, discharge and the risk of loss.

FOB is the term most favoured by traders who have their own freight arrangements. The buyer controls the vessel, the route and the insurance, and can often get a better freight rate than the seller. The catch is that the buyer must nominate a vessel that arrives within the laycan, or the seller may charge demurrage.

CFR — Cost and Freight

Under CFR, the seller pays the freight to the named destination port, but the risk still passes to the buyer when the cargo is on board at the loading port. That split is the trap: the buyer owns the risk during the voyage, but the seller has chosen the vessel and the route. If the cargo is damaged at sea, the buyer bears the loss even though the seller arranged the shipment.

CFR suits buyers who want the seller to handle logistics but who are comfortable managing their own insurance. It is common in term contracts where the seller has a freight advantage.

CIF — Cost, Insurance and Freight

CIF adds insurance to CFR. The seller pays the freight and arranges marine insurance to the named destination port. The risk still passes to the buyer at the loading port, but the buyer is covered by the seller’s insurance policy.

CIF is the most buyer-friendly of the three sea terms because the insurance is arranged for the buyer. But the cover is usually minimum-cover, and the buyer should check the policy wording — a cheap CIF quote can hide a policy that excludes the loss the buyer cares about.

DAP — Delivered at Place

Under DAP, the seller delivers the cargo to the named destination, ready for unloading, and bears the risk until that point. The buyer handles import clearance and unloading. DAP shifts the most responsibility to the seller: freight, insurance, route and risk during the voyage all sit with the seller.

DAP suits buyers who want a delivered price and who do not want to manage a vessel. It also suits sellers who have a logistics network and can control the full chain. The price is higher because the seller carries the risk, but the buyer gets a single number and a single point of responsibility.

How to choose

The choice depends on three things: who has the better freight rate, who can manage the risk, and who controls the discharge terminal. A buyer with a freight desk and a good insurance policy will usually prefer FOB. A buyer who wants a delivered price and no vessel management will prefer DAP. CFR and CIF sit between the two, and the insurance question decides between them.

Frequently asked questions

Where does risk pass under FOB? When the cargo is on board the vessel at the loading port. After that, the buyer bears the risk.

What is the difference between CFR and CIF? CIF includes marine insurance arranged by the seller; CFR does not. The risk point is the same for both.

Is CIF insurance enough? It is usually minimum cover. The buyer should read the policy wording and confirm the cover matches the cargo.

Which term is best for a first-time buyer? DAP gives the buyer a delivered price and a single point of responsibility. It is the simplest to manage, though not always the cheapest.

Plan the shipment

Send the cargo, the destination and the term you have in mind, and the trading desk will confirm the cost and risk split. For a related logistics guide, see LPG logistics.