Understand the energy supply chain
From the loading terminal to the receiving terminal.
This guide explains the main stages, documents and commercial arrangements that shape the movement of crude oil by sea: how a cargo is defined, who bears cost and risk under each delivery term, and how a shipment is loaded, documented, discharged and settled.
Start with a defined cargo
The commercial agreement comes before vessel loading.
Identify the parties and source
Establish the seller, buyer and lawful source of the cargo. Confirm the seller's authority to sell, export and import requirements, and acceptance by the relevant banks and authorities.
Agree the product and price
Define the crude grade, origin, quantity and tolerance; quality parameters such as API gravity, sulphur, water and sediment; loading and discharge ports; and the shipment window. Pricing may be fixed or linked to an agreed benchmark, differential and pricing period.
Sign the sale and purchase agreement
The SPA defines specifications, inspection, delivery terms, payment, title transfer, invoicing quantities, claims, permitted operational time and delay charges. Each obligation should be assigned clearly.
Delivery terms and payment
Transport costs, cargo risk and ownership are distinct.
FOB at the named loading port
The buyer normally nominates and arranges the vessel. The seller delivers the cargo onboard at the named loading port, where cargo risk normally passes under Incoterms 2020.
CFR at the named destination port
The seller arranges and pays sea freight to the named destination. Cargo risk normally passes when the cargo is onboard at the loading port. The buyer normally arranges cargo insurance.
CIF at the named destination port
The seller arranges sea freight and the required insurance. Cargo risk still normally passes onboard at the loading port. Additional cover can be agreed to suit the cargo and voyage.
Payment and title
A documentary letter of credit is one available payment method. Its document requirements and payment timing must match the SPA. Banks examine documents; inspection and cargo acceptance follow the separate contractual arrangements. Ownership transfer must be stated in the contract.
Define timing and charges
The loading window is commonly called laycan. Laytime is the allowed operational time under the applicable terms. Demurrage addresses qualifying delay beyond the allowance; calculation depends on the sale and charter arrangements.
Loading and shipment documents
From storage tanks to the tanker: nomination, inspection, loading and document issuance.
Prepare the cargo and nominate the vessel
The cargo is made available at the terminal. The party arranging transport submits the vessel for acceptance. Terminals assess dimensions, draft, capacity, equipment and other requirements for the intended operation.
Measure and inspect
According to the agreed inspection scope, independent surveyors measure quantities, take representative samples and report quality. Tank and vessel figures are reconciled using the contractual measurement basis.
Load and record
Terminal and vessel teams transfer crude through the approved loading connections into the tanker. They record operational times and complete the agreed quantity and quality documentation.
Issue the cargo documents
Typical documents include the commercial invoice, bill of lading, quantity and quality certificates, certificate of origin where required, insurance evidence where applicable, and a statement of facts recording operational times. Exact requirements depend on the contract, credit and jurisdictions.
The bill of lading records the carrier's receipt of cargo for carriage and has a role in delivery procedures. Its legal effects depend on its form and the governing arrangements.
Transit, discharge and settlement
Delivery does not finish at the ship's arrival: from arrival to final reconciliation.
Sea transit and arrival planning
The vessel proceeds to the receiving port. Estimated arrival updates help coordinate berth availability, receiving tanks, customs and the documents needed for release and discharge.
Inspect and discharge
After the relevant clearances and terminal acceptance, agreed measurements and sampling are performed. Terminal and vessel teams transfer crude into shore tanks or refinery receiving facilities and record the operation.
Reconcile quantity and quality
Receiving measurements, analysis and remaining-onboard figures are reviewed. Differences are assessed against the SPA measurement basis, tolerances, evidence and claim procedure; they do not automatically establish liability.
Close the accounts
Final settlement follows the agreed price, invoicing basis and payment terms. Applicable freight, insurance, inspection, port, financing and delay costs are reconciled. Claims are handled within contractual deadlines.
Understand the trading margin
Trading margin is sales proceeds less cargo purchase cost and all related expenses. Cargo risk, benchmark price exposure, exchange rates, financing and operational delays can affect the final result.
Technical references: SLB, Defining Cementing and Defining Completion; OSHA, Well Control. Commercial references: ICC Academy, Place of Delivery and Risk Transfer; CFR and CIF Incoterms 2020; International Trade Administration, Letter of Credit and Common Export Documents.
Images are AI-generated industry illustrations. This guide explains industry processes and does not document HM POWER-owned assets or completed projects.
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