Incoterms for Oil and Gas Cargoes — FOB, CFR, CIF and DES Explained

Which Incoterms apply to oil and gas cargoes?

Incoterms® rules are the International Chamber of Commerce (ICC) definitions of delivery terms. The current edition, Incoterms® 2020, has 11 rules ^[1]. Four of them (FAS, FOB, CFR and CIF) are for sea and inland waterway transport only, where the seller delivers on board or alongside a vessel ^[2]. For bulk oil and gas cargoes, the key Incoterms are FOB (free on board), CFR (cost and freight), CIF (cost, insurance and freight) and the delivered rule DAP (delivered at place).

Incoterms cover less than many traders assume. The ICC says they do not deal with payment, sanctions, force majeure or remedies for breach and, "perhaps most importantly", not with the transfer of title ^[2]. It advises naming the rule, the place and the edition, because leaving out the year "could cause problems" ^[2].

DES (delivered ex ship) and DEQ (delivered ex quay) were Incoterms 2000 rules. The 2010 edition cut the rules from 13 to 11: DAP replaced DES, and DAT (now DPU, delivered at place unloaded) replaced DEQ ^[3,1]. The labels survive in contracts. Repsol's 2017 general terms and conditions (GTCs) still provide for DES deliveries ^[4], and LNG is commonly sold "Delivered" or "Ex Ship", with title passing at the delivery port ^[5].

In oil trading, the Incoterm is only the starting point, because deals commonly incorporate a company's GTCs. BP's 2015 GTCs have separate parts for FOB, CFR/CIF and ex-ship sales, and treat ex-ship references as DAP ^[6]. Shell's 2023 GTCs come in five versions, including one for DAP by vessel ^[7]. Law firm Stephenson Harwood advises reading the Incoterm together with the GTCs and any bespoke terms ^[8].

Where do risk and title pass under FOB, CFR, CIF and DES?

Under FOB, CFR and CIF, risk passes when the cargo is placed on board at the loading port, not on arrival ^[9,10]. What differs is who arranges the voyage.

FOB. The buyer arranges the shipping ^[5]. Under BP's GTCs, risk and property pass as the oil passes the vessel's permanent hose connection at the loading terminal ^[6].

CFR and CIF. The seller arranges and pays for the voyage, but the buyer bears the risk at sea. The ICC Academy calls the C rules "shipping terms" ^[10]. Under BP's GTCs, risk passes at the loading hose, and property passes there too for a full cargo ^[6].

DES and DAP. Delivery and risk transfer both happen at destination ^[10]. Under BP's ex-ship terms, risk and property pass at the hose connection at the discharge terminal ^[6]. The seller therefore carries voyage, war and delay risk until discharge.

Because Incoterms are silent on title, the contract must cover it. BP's terms, for example, preserve the seller's right to hold the shipping documents until it is paid ^[6].

How does cargo insurance work under CIF and CFR?

Under CIF, the seller must insure the cargo for the buyer, even though the buyer carries the risk at sea ^[9]. Incoterms® 2020 kept Institute Cargo Clauses (C) as the CIF default, while CIP now requires the higher cover of clauses (A) ^[1,2]. CIF cover must be at least 110% of the invoice value ^[11]. Under CFR the buyer insures, which can suit buyers able to buy cover more cheaply ^[9].

Oil GTCs often go further. BP's 2015 terms require a CIF seller to insure the full value plus 10% under Bulk Oil Clauses SP 13C or Institute Cargo Clauses (A), from loading hose to discharge hose. War and strikes cover is excluded unless the buyer asks for it at least two business days before loading, and the buyer then pays that premium ^[6].

This matters in 2026. Standard cargo policies generally exclude war perils unless Institute War Clauses are added, and many cargo owners found that their ordinary cover did not respond to missile attacks in the Gulf ^[12].

Laytime and demurrage: who pays for waiting time?

Laytime is the time allowed to load or discharge. Demurrage is the agreed rate payable once it runs out. Law firm HFW notes that English law will not imply these terms into a sale contract, so they must be written in ^[13]. Under BP's terms, a full cargo on a vessel above 15,000 tonnes deadweight is allowed 36 running hours (24 for smaller ships). At discharge, they start six hours after notice of readiness (NOR) is tendered, or when discharge begins if earlier ^[6].

Time bars are strict. A CFR or CIF seller's fully documented demurrage claim must reach the buyer within 90 days of hose disconnection at discharge. An FOB buyer must notify its claim within 45 days of hose disconnection at loading. Late claims are extinguished ^[6].

Do not assume the sale contract mirrors the charterparty. HFW explains that "as per charterparty" wording may import the demurrage rate but not laytime, and that time bars need specific incorporating words ^[13].

Nominations and inspection at the load port

Under FOB, the buyer nominates the vessel. BP's terms require the nomination at least five days (products) or eight days (crude oil) before the laydays start, and the seller must accept or reject it within one business day ^[6]. Under CFR, CIF and delivered terms, the seller nominates.

Quantity and quality are normally fixed at loading. Under BP's terms, the terminal's inspectors or a jointly appointed independent inspector measure and sample the cargo. Their certificates are used for invoicing, except for manifest error or fraud ^[6]. The bill of lading (B/L) figure is generally the shore figure. The master compares it with the ship's figures, allowing for the vessel experience factor, and issues a note of protest if they cannot be reconciled ^[14].

Certificates can be challenged. In MOK Petro Energy v Argo, the court was not satisfied that load-port quality certificates reflected the cargo. Stephenson Harwood advised keeping sampling records and extra samples ^[15].

How to choose FOB, CFR, CIF or delivered terms in 2026

The choice turns on who is best placed to manage freight, insurance and voyage risk, all of which are costly in 2026. On 15 October the Baltic Exchange assessed its TD3C route (Middle East Gulf to China) at WS1,318.75, or about $1.41 million a day, and a US Gulf to China VLCC voyage at about $79.6 million ^[16]. Hormuz war-risk premiums were quoted at 3–10% of hull value in July, against about 0.25% before the war ^[17].

Terms have shifted. Reuters reported that buyers refrained from chartering ships to load inside Hormuz, so Saudi Arabia moved those volumes to spot sales, some on a delivered basis to refiners in China, India and Taiwan. Some delivered crude was priced about $20 a barrel above November official selling prices ^[18]. The seller took on the voyage and priced it in.

Costs do not move automatically. Stephenson Harwood notes that steep rises in freight, war-risk or insurance costs are not necessarily force majeure while delivery remains possible. Charterers who bear extra costs under a war clause can pass them to a buyer only if the sale contract says so expressly ^[8]. In LNG, Vinson & Elkins noted in March 2026 that US suppliers' FOB terms and destination flexibility had made their contracts competitive with traditional destination-restricted deals ^[19].

Checklist: agreeing terms for an oil or gas cargo

• Name the rule, port and edition (for example "CIF Rotterdam Incoterms® 2020") and the GTCs that apply.
• State when title passes and what payment security must come first.
• Under CIF, specify the insurance clauses, the insured value, and who buys and pays for war cover.
• Align laytime, demurrage and time bars with the charterparty in specific words.
• Fix nomination deadlines and the vessel approval process.
• Agree who appoints the inspector and how samples are kept.
• Allocate war-risk premiums, freight increases, rerouting costs and safe-port risk expressly.

Alupetra follows contract and shipping practice for crude oil, LPG, gasoline and LNG cargoes from its Istanbul, London and Dubai offices.