Industry practice The comparison below describes general international practice under the Incoterms rules as commonly adapted for crude oil. Commercial procedure The worked example is one seller's published contract. Neither is Nigerian law, and neither is a statement of our own commercial procedure, which is agreed case by case in formal contracts.
FOB and CIF side by side
| Question | FOB (free on board) | CIF (cost, insurance and freight) |
|---|---|---|
| Who charters the vessel | Buyer | Seller |
| Who pays freight | Buyer | Seller (built into the price) |
| Who arranges marine cargo insurance | Buyer, for its own account | Seller, for the buyer's benefit, to the minimum cover the contract specifies |
| Where risk of loss passes | At the loading port, as the crude passes the vessel's manifold | Also at the loading port — a common misunderstanding is that risk passes at discharge |
| Price basis | Benchmark ± differential, at the loading terminal | FOB value plus freight and insurance |
| Quantity and quality determined | At the loading port | Usually at the loading port; some contracts use discharge figures |
| Buyer's main exposure | Freight market, vessel vetting, demurrage at the load port | Reliance on the seller's shipping performance; less control over timing |
| Typical user | Refiners and traders with shipping capability | Buyers without a chartering desk, or sellers with their own fleet |
CFR (cost and freight) is CIF without the seller's obligation to insure. In crude contracts these terms are always modified by the seller's general terms and conditions, which prevail over the generic definitions.
Worked example: NNPC's FOB terms
NNPC sells on an FOB basis. Its general terms and conditions for the 2021–2023 contract cycle — a public document — illustrate what FOB means in practice:12
Nomination
The buyer is allocated a cargo within the monthly programme and nominates a vessel acceptable to the terminal; loading points and their operators are listed in the export terminal database.
Letter of credit
An irrevocable documentary credit under UCP 600 is lodged at least six banking days before the loading window, stating the buyer's chosen pricing option.
Regulatory clearance
The exporter files the advance cargo declaration and the regulator clears the vessel and issues the cargo's Unique Identification Number — the sequence is set out in the export rules guide.3 Law / regulation
Loading
The vessel tenders notice of readiness and loads. Laytime and demurrage run under the contract; delays awaiting government clearance are excluded from laytime.
Documents
Bill of lading, certificates of quantity, quality and origin, manifest, time sheet and ullage report are issued. The bill of lading quantity is final.
Pricing and payment
The price is calculated from Dated Brent quotations around the bill of lading date plus the official differential (see how Nigerian crude is priced); payment falls due thirty days after the bill of lading date.
A caution about "CIF" offers
CIF is a legitimate term used by established sellers with shipping capability. It is also the favourite format of fraudulent offers, because it lets the "seller" claim the cargo is already afloat and then request vessel, port or insurance charges from the buyer. Under a genuine CIF sale those costs belong to the seller. The abbreviations that usually accompany such offers — ATS, TTO, FCO — are decoded in the glossary of broker-market jargon. If you are asked to pay them in advance, see the verification centre.
Which should a buyer choose?
- If you have chartering and vetting capability, FOB gives control over freight cost and timing, and matches how most Nigerian crude is sold.
- If you do not, buying CIF or CFR from an established trader that has itself bought FOB is the normal solution. The trader's margin pays for shipping risk you would otherwise carry. Who can lawfully sell Nigerian crude explains where such traders sit in the chain.
- Use the cargo value calculator to compare an FOB price with an indicative delivered cost.