Essential Steps for Securing Product Shipment from North America Under CIF and FOB Terms

Securing a product shipment from North America involves a clear understanding of the procedures, documentation, and financial requirements under CIF (Cost, Insurance & Freight) and FOB (Free On Board) terms. Whether you are a buyer or a logistics coordinator, knowing the step-by-step process can save time, reduce risks, and ensure smooth delivery. This guide breaks down the essential steps to help you navigate the shipment process confidently.

Cargo ship docked at Houston port, ready for loading

Understanding CIF and FOB Delivery Terms

Before diving into the shipment process, it’s important to clarify what CIF and FOB terms mean:

• FOB (Free On Board) means the seller delivers the goods on board the vessel nominated by the buyer at the agreed loading port. The buyer assumes responsibility for freight, insurance, and other costs from that point.

• CIF (Cost, Insurance & Freight) means the seller covers the cost, insurance, and freight to bring the goods to the destination port. The risk transfers to the buyer once the goods are loaded on the vessel.

  
  

Both terms require clear agreements on loading ports, inspection, insurance, and payment methods to avoid misunderstandings.

Step 1: Buyer Submission of Initial Documents

The first critical step is for the buyer to submit essential documents for verification and due diligence. This confirms the buyer’s legal and financial capacity to proceed with the transaction.

Required documents include:

• Tank Storage Agreement (TSA) confirming reserved tank capacity at the destination port.

• Irrevocable Corporate Purchase Order (ICPO) on official company letterhead, referencing the seller’s working procedure.

• Company’s Certificate of Incorporation to prove legal registration.

• Valid government-issued ID (passport data page) of the company signatory.

  
  

These documents ensure the buyer is prepared and authorized to handle the shipment and storage of the product.

Step 2: Issuance and Endorsement of Commercial Invoice

Once the initial documents pass verification, the refinery issues a Commercial Invoice (CI) for the agreed liftable quantity. The buyer must:

• Review the Commercial Invoice carefully.

• Endorse and return the signed invoice within the validity period.

  
  

This step confirms the buyer’s intention to proceed and locks in the shipment details.

Step 3: Financial Capability Verification

The seller needs assurance that the buyer can pay for the product and associated costs. The buyer must provide one of the following:

• A recent bank statement dated within the last 7 business days.

• A valid Proof of Funds (POF) showing readiness to pay.

• If neither is available, a Guarantee Letter on official letterhead affirming the buyer’s ability and willingness to pay. This letter must include a legally binding penalty clause for default.

  
  

This financial check protects both parties and ensures the transaction proceeds without delays.

SGS-certified inspection process on product shipment

Step 4: Refinery Commitment and Tank Availability Confirmation

After financial clearance, the refinery commits to the shipment. The buyer must confirm the availability of the reserved tank capacity at the destination port. This step is crucial for the Vessel-to-Tank (VTT) procedure, which applies to all destination ports including Houston, Rotterdam, Jurong, and Fujairah.

The VTT procedure ensures:

• The product is transferred directly from the vessel to the buyer’s tank.

• Storage capacity is secured to avoid demurrage or delays.

• Compliance with all port handling and injection requirements.

  
  
  
  

Step 5: Inspection and Insurance Coverage

Before loading, the product undergoes an SGS-certified inspection to verify quality and quantity. This independent inspection protects the buyer by confirming the product meets agreed specifications.

The seller provides 100% insurance coverage for the shipment value, which covers risks during transit. This insurance is included under CIF terms and recommended under FOB arrangements.

Step 6: Payment Methods and Transaction Types

Payment methods accepted include:

• T/T Wire Transfer

• MT103

• Standby Letter of Credit (SBLC)

• Documentary Letter of Credit (DLC)

  
  

Transactions can be conducted on a spot basis or under a contract depending on the buyer’s preference and negotiation.

Loading operations at Rotterdam port with large oil tanker

Practical Tips for Buyers

• Reserve tank capacity early to avoid storage issues at the destination port.

• Submit all documents promptly to speed up verification.

• Review the Commercial Invoice carefully before endorsement.

• Prepare financial proof in advance to avoid delays.

• Understand your responsibilities under CIF or FOB to manage risks effectively.

• Communicate clearly with the seller to confirm all shipment details.