How do you read global oil prices? Your guide to understanding FOB and CIF terms

When you follow the news releases for prices palm oil , or sunflower oil , or soy oil Next to the price, you often find three small letters such as FOB or CIF. These letters are not just minor details, they are the key to understanding the true cost of your shipment and determining your responsibilities as an importer or exporter in the world of oils and fats.

In this article, we'll decode these International Business Terms (Incoterms) to help you make more accurate decisions in your next trades.

1. FOB (Free On Board) term - “Onboard Delivery”

This is one of the most common terms in the oil business. When you see a price like “Malaysian palm oil 950 dollars per ton FOB Port Klang”, it means that the $950 price covers costs up to a specific point only.

What does it mean?Simply put, the seller's (exporter) liability ends completely once the shipment of oil is loaded onto the ship that you (the buyer) booked at the designated port of shipment (such as Port Klang in Malaysia).

• The seller (exporter) must: Preparing oil, transporting it to the port, completing all customs export procedures, and loading it on board the ship.
• You (buyer/importer) should: From the moment the cargo boards the ship, you are responsible. You have to pay the cost sea freight, andinsuring On the shipment during transportation, and the costs of unloading and customs clearance in your country.

In short: The FOB price does not include the cost of the oil sailing to you.

2. The term CIF (Cost, Insurance, and Freight) - “Cost, Insurance and Freight”

Let's say you find another price: “Sunflower oil 1100 dollars per ton CIF Alexandria”. This price is higher, because it includes more services than the seller.

What does it mean?Here, the seller is obliged to cover more costs. He not only delivers the shipment on board the ship, but also pays the costs of shipping and buys an insurance policy to cover the shipment until it reaches your country's port (Alexandria port in our example).

• The seller (exporter) must: All of the above are in FOB, plus Payment of sea freight to the port of arrival, andBuying a marine insurance policy For your benefit.
• You (buyer/importer) should: Your responsibility begins when the ship arrives. You have to pay the costs of unloading, local customs clearance, and transporting the shipment from the port to your warehouses.

An important technical point: Although the seller pays insurance and shipping, Risk transfer point (Risk Transfer) from the seller to you occurs as soon as the oil is loaded onto the ship at the port of origin, just like FOB.

Other less common terms

• CFR (Cost and Freight) - Cost and Freight:This term is a CIF twin but without insurance. The seller pays the shipping cost until the port of arrival, but you are responsible for purchasing the insurance policy for the oil shipment.
• EXW (Ex Works) - delivery at the seller's location:This represents the least obligation for the seller. The price quoted is for the purchase of oil from its factory or warehouse. As a buyer, you are responsible for every next step: truck loading, port transportation, export customs clearance, shipping, insurance, and clearance in your country. This term is often used when purchasing from small mills or presses locally.

Conclusion: How does this affect your decision?

Understanding these terms is necessary to calculate The final cost (Landed Cost) A ton of oil.

• FOB price It gives you more flexibility in choosing the shipping and insurance company you prefer, and you may be able to get better prices.
• CIF price It saves you the trouble of looking for a shipping and insurance company. It is a good option for new importers or those who prefer to have the supplier handle all logistics arrangements.

The next time you read the Oil and Fat Price Bulletin, you'll know exactly what the quoted price means, and you'll be able to calculate your costs more accurately, ensuring you achieve the profit margin you plan for.

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