Incoterms define where delivery occurs, where risk transfers from seller to buyer, and which party pays which costs in international sales. In physical commodity trading — bulk liquids in tankers, containerised scrap, or break-bulk fats — FOB, CFR, and CIF remain the dominant terms because they align with shipping practice, letter-of-credit structures, and the point at which insurance and survey customs are well understood. This guide explains Incoterms 2020 rules as applied to bulk liquids and scrap exports, clarifies common misconceptions about risk transfer, and lists documentation duties buyers and suppliers should allocate explicitly in contracts.
Incoterms 2020 in commodity context
The International Chamber of Commerce (ICC) publishes Incoterms as globally recognised shorthand for delivery obligations. Incoterms 2020, in force since 1 January 2020, updated rules for security-related costs, insurance under CIF and CIP, and on-board Bill of Lading requirements under FCA. They do not replace contract law, title transfer clauses, or payment security — they allocate operational tasks.
Commodity traders often add amendments: "FOB stowed and trimmed," "CFR discharge port," or "CIF including war risk." Such additions are valid if explicit; silent assumptions cause disputes when demurrage, export licences, or import bans arise.
Source: International Chamber of Commerce (ICC), Incoterms 2020 official rules and ICC publication No. 723.
FOB — Free On Board
Under FOB (named port of loading), the seller delivers goods on board the vessel nominated by the buyer at the named port. Risk transfers from seller to buyer when goods are on board the vessel — the classic "ship's rail" concept is replaced in Incoterms 2010/2020 by on-board placement, but practical survey practice still focuses on load completion and clean on-board bill of lading.
Seller obligations under FOB
- Export clearance where applicable (except where prohibited).
- Delivery on board vessel at named port of loading by agreed date.
- Costs until goods are on board, including loading (unless port practice differs — specify stowed/trimmed).
- Provide commercial invoice, packing list (where relevant), and documents enabling buyer to take delivery.
Buyer obligations under FOB
- Contract carriage from port of loading to destination.
- Import clearance, duties, and inland transport from discharge port.
- Assume risk once goods are on board at load port.
- Pay freight, marine insurance (unless separately agreed CIF-style), and demurrage at load/discharge per charter party.
FOB for bulk liquids
Tallow, UCO, palm products, and chemical feedstocks loaded via shore pipeline or ship's manifold require precise timing: laycan windows, vessel nomination notice periods, and heating/ nitrogen specifications. Under FOB, the buyer's vessel readiness drives loading; seller demurrage claims arise if cargo is available but ship delays. Quality and quantity determination is often at load port (shore tank measurement, ullage, or independent survey). Risk transfers on board, but quantity disputes may reference shore figures if contract says "ship's figures final" or "shore figures final."
FOB for containerised scrap
Container scrap exports frequently use FOB port of loading variants where the seller stuffs container and delivers to carrier at terminal. Risk transfers when container is on board vessel. Seller typically pays stuffing, inland haul to port, and export documentation; buyer pays ocean freight and marine insurance. Photos at stuffing and seal numbers are critical evidence because post-load inspection is impossible without destination devanning cost.
FOB favours buyers who control freight and insurance — large trading houses and smelter groups with regular liner bookings. Sellers in fragmented export markets often prefer CFR/CIF to capture freight margin and guarantee discharge service.
CFR — Cost and Freight
CFR (named port of destination) extends seller obligation to pay costs and freight to bring goods to the named port of destination. Risk still transfers when goods are on board at port of loading — identical risk transfer point to FOB. The seller does not insure the goods for the buyer's benefit unless the parties add CIF-like insurance separately.
Why CFR dominates some commodity corridors
Exporters with freight relationships — regular bookings on scrap lanes to Turkey or India, tanker parcels on fat routes — quote CFR destination to offer landed pricing while retaining freight negotiation upside. Buyers receive a single headline price but must insure from load port onward or accept uninsured ocean risk.
CFR documentation
- Seller obtains bill of lading showing on-board at load port, consigned or to order as per LC.
- Freight prepaid B/L typical under CFR.
- Commercial invoice often shows CFR value; some jurisdictions require separate freight invoice for customs valuation.
- Notice of shipment to buyer so insurance can be placed if buyer arranges cover from load.
Source: ICC Incoterms 2020, CFR rule text; BIMCO charter party forms commonly paired with FOB/CFR bulk sales (e.g. Gencon, Asbatankvoy) — industry pairing practice.
CIF — Cost, Insurance and Freight
CIF adds seller obligation to procure minimum marine insurance (Institute Cargo Clauses C under Incoterms 2020 default, unless parties agree broader cover) from port of loading to port of destination. Risk still transfers on board at load port — the seller pays freight and insurance but does not bear transit risk after loading.
Insurance practicalities
CIF insurance must be assignable, cover minimum 110% of CIF value where customary in LC trade, and allow claims at destination. Commodity buyers should verify Institute Cargo Clauses (A) vs (C) upgrades in contract — Clause C excludes many theft and handling risks relevant to container scrap. War and strike risks may require additional premium in conflict-affected corridors.
CIF for bulk liquids
Heated cargoes need insurance endorsements reflecting temperature maintenance and heating failure. Contamination and heating coil damage claims require survey at discharge; B/L clausing affects recoverability.
Risk transfer: the most misunderstood clause
Under FOB, CFR, and CIF, risk passes at load port when goods are on board. The seller bears no transit loss risk after that moment unless contractually overridden (retention of title, specific quality guarantees, or separate warranty). Buyers who believe "CIF means seller responsible until arrival" confuse cost allocation with risk allocation.
Consequences for commodity desks
- Marine loss: Under CFR, buyer claims against own insurance or carrier; seller's job was proper load and clean docs.
- Quality at discharge: Unless contract specifies quality final at discharge, load port analysis may govern — critical for liquids and blended scrap.
- Import rejection: Regulatory rejection at destination (contamination, wrong HS code) may fall on seller if caused by mis-description at load; pure market or policy change risks often sit with buyer.
- Demurrage: Allocation follows charter party and Incoterm cost split — specify who pays load vs discharge demurrage in sales contract, not only in charter.
FCA and the container shift
Incoterms 2020 encourages FCA for containerised goods: seller delivers to carrier at named place (terminal or forwarder warehouse). Buyer can instruct carrier to issue on-board B/L to satisfy LC requirements — addressing a long-standing gap where FCA delivery at terminal did not produce "on board" documentation. Scrap and packaged commodities moving through CY/CFS terminals increasingly reference FCA when sellers do not control vessel loading timing.
Source: ICC Incoterms 2020 FCA rule, Bill of Lading with on-board notation option; FIATA and forwarder industry guidance on FCA vs FOB for containerised cargo.
Documentation matrix by Incoterm
Documents sellers typically provide (all terms)
- Commercial invoice
- Packing list (scrap, packaged goods)
- Certificate of origin (if required for preference or buyer compliance)
- Export licence or waste notification copies (regulated commodities)
- Certificate of analysis / weight certificate (commodity-specific)
Additional under FOB
- Clean on-board bill of lading or mate's receipt enabling buyer to obtain B/L
- Export clearance proof
- Load port survey report if contracted
Additional under CFR / CIF
- Freight prepaid bill of lading to named discharge port
- Under CIF: insurance certificate or policy meeting Incoterms minimum
- Shipping notice with vessel ETA
Import-side documents (buyer responsibility unless delegated)
- Import licence and customs entry
- Waste import consent (Basel/WSR where applicable)
- Port charges, terminal handling, inland haulage from discharge
- Destination survey and quality claim preservation notices
In LC-backed trade, documents must mirror Incoterm words exactly. A CIF credit calling for "freight collect" B/L or an FOB credit requiring seller-paid freight is a documentary conflict — resolve before shipment, not at bank presentation.
Incoterms for scrap vs bulk liquids: practical differences
Scrap (containers and break-bulk)
Weight finality: container weights from exporter weighbridge vs port scale. Moisture allowance and rejection thresholds should reference inspection location. FOB suits sellers with strong load-port logistics; CFR suits buyers wanting delivered pricing without chartering vessels (liner FCL). Break-bulk scrap on chartered vessels mirrors bulk liquid FOB/CFR mechanics with stowage and grab discharge clauses.
Bulk liquids (tanks and iso-tanks)
Heating, nitrogen blanket, and line displacement procedures belong in quality schedule, not only Incoterm line. FOB tanker: buyer's ship, seller's shore tank readiness. CFR/CIF iso-tank: clarify who books tank return, cleaning, and demurrage during discharge. Previous cargo and kosher/halal certificates are independent of Incoterm but must accompany document set.
Source: IMO/IMDG Code for dangerous goods where applicable to chemical feedstocks; ISO tank operator guidelines on heating and discharge responsibilities (industry standard practice).
Intermediaries and tri-party structures
Commodity intermediaries often back-to-back FOB purchase and CFR sale, earning margin on freight and finance. Each leg must carry consistent quantity, grade, and documentation flow; the intermediary bears performance risk on both sides if load failure or LC discrepancy occurs. Transparent allocation of survey cost, fumigation (where required), and waste paperwork avoids margin erosion.
When introducing supplier and buyer, professional brokers clarify which Incoterm applies to which leg and whether the buyer's vessel or seller's booking agent controls load slot — operational detail that prevents demurrage fights unrelated to commodity quality.
Contract clauses to pair with Incoterms
- Quality and inspection: Load vs discharge finality; GAFTA/FOSFA arbitration for oils and seeds adaptable in spirit to fats.
- Laycan and cancellation: Rights if vessel misses window under FOB.
- Force majeure: Port closure, sanctions, import ban — risk may have passed on paper while cargo is physically stuck.
- Title and payment: LC, documentary collection, or open account; Incoterm does not replace credit risk management.
- Sanctions compliance: Shared obligation to screen parties and ports regardless of FOB/CIF label.
Common disputes and prevention
Short landing vs B/L weight: Contract whether B/L, shore, or outturn figures govern and within what tolerance claims arise.
Contamination in transit: Under CFR/CIF with risk at load, buyer needs ICC (A) insurance and timely notice to carrier and surveyor at discharge.
Wrong Incoterm on LC: Banks examine documents, not commercial fairness — align LC text with sales contract before load.
Export waste notification mismatch: Regulatory documents must match invoice grade and HS code; Incoterm does not fix customs rejection for documentation errors attributable to seller.
Source: International Chamber of Commerce (ICC), Dispute resolution and Incoterms guidance; GAFTA 125 arbitration framework (reference for analogues in fats and oils trade contracting).
Summary selection guide
- Choose FOB when buyer controls freight, wants load-port risk from on-board moment, and has vessel or liner contracts.
- Choose CFR when seller offers freight-inclusive pricing but buyer will insure ocean transit (or self-insures).
- Choose CIF when seller provides minimum marine insurance and buyer wants single landed price with standard ICC (C) cover unless upgraded.
- Consider FCA for containerised flows through terminals where seller does not place goods on vessel directly.
Incoterms are the grammar of physical export — not the whole sentence. For bulk liquids and scrap, pair FOB, CFR, or CIF with explicit risk-aware quality clauses, survey location, waste paperwork, and insurance level. Desks that document those layers avoid turning a standard ICC rule into an expensive port dispute.