FOB vs CIF for Pellet Traders: Who Owns the Risk? | PelletDesk

Who Holds the Bag? Navigating FOB, CIF, and CFR in the Pellet Trade

By Hemant Tilotia Apr 10, 2026 2 min read FOB vs CIF for pellet traders

"I’m reporting from the docks where the salt air meets the logistics grind. In the global pellet trade, the biggest question isn't 'When will it arrive?'—it's 'Who holds the bag if the ship hits a storm?' Whether you're a producer in Vietnam or a buyer in Mundra, understanding the fine print of FOB, CIF, and CFR isn't just a technicality; it's the difference between a profitable shipment and a total washout. Here is the veteran’s guide to who owns the risk when the cargo is on the water."

LIVE FROM THE PORT OF KANDLA The cranes are moving, the salt air is biting, and somewhere on the water is a 20,000-ton bulk carrier filled with wood pellets. But here’s the breaking news: the price of maritime fuel just spiked, and there’s a storm brewing in the Indian Ocean. Do you know who is paying for the delay?

The Big Three Incoterms for Biomass

FOB (Free On Board): The Producer’s Safety Net

The Mechanics: You, the seller, are responsible for the pellets until they "pass the ship's rail" at your local port. Real-World Example: You’re a producer in Vietnam selling to a buyer in India. You get the bags to the Haiphong port. If the ship catches fire two days later in the South China Sea, that’s the buyer’s problem. Why use it? If you are a small plant, you don't want to play the "freight market." Let the big traders handle the ships.

CFR (Cost and Freight): The Middle Ground

The Mechanics: You pay to get the pellets to the destination port (e.g., Mundra), but—and this is a big "but"—the risk transfers to the buyer the moment the pellets are loaded at the origin. The Trap: If the pellets get wet due to a leaky hatch during the voyage, the buyer has to fight the insurance company, even though you paid for the freight.

CIF (Cost, Insurance, and Freight): The "Full Service" Option

The Mechanics: You pay for the freight AND the insurance. The Veteran Move: Smart traders love CIF because they can often negotiate a better freight rate than the buyer, "padding" their margin by a few dollars per ton while giving the buyer peace of mind.

The "Hidden" Costs of International Trade

Demurrage: This is the "late fee" for ships. If your paperwork isn't ready and that ship sits at the dock for an extra day, it could cost you $15,000 to $30,000 USD. Always have your Lab Reports and Bill of Lading (BL) ready before the ship docks.