FOB vs. CIF: A Buyer’s Guide to Biomass Shipping Terms

FOB vs. CIF: A Buyer’s Guide to Biomass Shipping Terms

In the world of international biomass trade, the price per ton is only one part of the equation. Because biomass—such as wood pellets or palm kernel shells—is a high-volume, relatively low-value commodity, logistics costs can represent up to 50% of the total landed cost.

When negotiating a contract, the most critical decision a buyer makes is choosing the right Incoterm (International Commercial Terms). For biomass exports, the two most common options are FOB (Free On Board) and CIF (Cost, Insurance, and Freight).

Here is a breakdown to help you decide which term best suits your business model.

1. Understanding FOB (Free On Board)

Under FOB terms, the seller is responsible for the goods only until they are loaded onto the vessel at the port of origin (e.g., Jakarta or Surabaya).

• Seller’s Responsibility: Transporting the biomass to the port, handling export clearance, and paying the loading costs.

• Buyer’s Responsibility: Booking the vessel, paying the ocean freight, arranging insurance, and handling all costs from the moment the pellets are on the ship.

• Risk Transfer: The risk of loss or damage transfers from the seller to the buyer as soon as the goods are "on board" the vessel.

Why choose FOB?

Large-scale buyers or energy companies often prefer FOB because they have established relationships with shipping lines. If you move thousands of tons of biomass monthly, you can likely negotiate better freight rates than the supplier can.

2. Understanding CIF (Cost, Insurance, and Freight)

In a CIF agreement, the seller takes on a much larger role in the logistics chain. The price quoted includes the product, the ocean freight, and the minimum insurance to the buyer’s port of destination.

• Seller’s Responsibility: Everything in FOB, plus booking the ship, paying for ocean freight, and providing maritime insurance.

• Buyer’s Responsibility: Unloading the goods at the destination port, handling import customs, and inland transport to the final warehouse.

• Risk Transfer: Interestingly, even though the seller pays for the freight, the risk still transfers to the buyer once the goods are loaded at the origin port.

Why choose CIF?

CIF is often the "worry-free" option for new buyers or smaller companies. It simplifies the process because the seller handles the complexities of international shipping and documentation.

Key Comparison: Which is Better for Biomass?

Critical Considerations for Biomass Buyers

1. Moisture and Cargo Quality

Biomass is sensitive to moisture. Under FOB, the buyer chooses the vessel. If you choose a ship with poor ventilation or leaky hatches, the resulting moisture damage is your responsibility. Under CIF, the seller chooses the vessel, but the buyer still carries the risk during the voyage. Always ensure your contract specifies the quality of the vessel.

2. Demurrage Risks

Biomass loading and unloading can be slow. In an FOB setup, if your chartered ship arrives late to the port, you (the buyer) may have to pay "demurrage" (waiting fees) to the ship owner. In CIF, the seller generally manages the loading timeline.

3. Insurance Coverage

CIF only requires the seller to provide "minimum" insurance coverage. If you are shipping premium wood pellets that are highly susceptible to fire or water damage, you may want to negotiate higher insurance coverage or opt for FOB and purchase your own comprehensive policy.

Final Verdict

If you are an experienced importer with a network of freight forwarders, FOB usually offers the best cost-saving opportunities. However, if you want a streamlined process where the biomass arrives at your port with minimal administrative burden, CIF is the safer, more convenient choice.