> ## Content Index
> Fetch the complete content index at: https://blog.financely.io/llms.txt
> Use this file to discover other available public pages before exploring further.

# LNG Delivery Terms: FOB, DAP and DES in Trade Finance
- URL: https://blog.financely.io/lng-delivery-terms-fob-dap-and-des-in-trade-finance/
- Published: 2026-11-14T16:04:04.000Z
- Updated: 2026-11-14T16:04:04.000Z
- Description: In LNG, the delivery term decides where risk and title pass from seller to buyer, which side arranges the ship, and at which port the cargo is measured and invoiced. Under FOB the buyer takes the cargo at the loading port. Under a delivered term (DES in older contracts, DAP.
- Author: Financely Debt Advisors
- Tags: LNG Trade Finance, Commodity Trade Finance, Documentary Letters of Credit

In LNG, the delivery term decides where risk and title pass from seller to buyer, which side arranges the ship, and at which port the cargo is measured and invoiced. Under FOB the buyer takes the cargo at the loading port. Under a delivered term (DES in older contracts, DAP under current Incoterms rules) the seller keeps the cargo until the discharge port. For trade finance, that single choice changes who needs funding, for how long, and what security a lender can take.

## FOB: the buyer takes the cargo at loading

Free on board means delivery happens at the loading terminal. The buyer charters the ship, pays freight and carries the voyage risk. In LNG practice the GIIGNL custody transfer handbook notes that for an FOB sale, the energy transferred and invoiced is determined at the loading port, and the seller normally maintains the measurement systems at the loading terminal while the buyer is responsible for the ship's measurement equipment.

For finance, an FOB buyer needs money, or a payment instrument, early. The seller will want a letter of credit or other security before loading, and the buyer then carries the cargo through the voyage. That is why FOB buyers usually need both purchase-side instruments and cargo finance. See [letter of credit structures for LNG cargoes](https://blog.financely.io/letter-of-credit-structures-lng-cargoes/).

## DES and DAP: the seller delivers at destination

Many LNG contracts still use DES, delivered ex ship. The ICC removed DES from the Incoterms rules in the 2010 revision. The ICC says the new DAP rule, delivered at place, applies where delivery is "at the buyer's disposal, but ready for unloading", which is how DES worked. Contracts that still say DES either refer back to Incoterms 2000 or define the term themselves. Current Incoterms 2020 keeps DAP, so newer LNG contracts often use DAP.

Under a delivered term the seller arranges and pays for shipping, keeps the risk during the voyage, and is paid against delivery at the discharge port. The GIIGNL handbook notes that for CIF and CFR contracts, and DES under Incoterms 2000, the measurement responsibility is reversed and energy is determined at the unloading port.

For finance, the delivered seller carries the cargo for longer and needs voyage finance and insurance. The buyer needs less upfront, but its payment is still large and is often secured by a letter of credit or a payment guarantee.

## CIF and CFR in LNG

Cost, insurance and freight (CIF) and cost and freight (CFR) appear in some LNG trades. The seller arranges the ship, but risk passes when the cargo is loaded, as under FOB. ICC guidance notes that CIF is reserved for maritime trade and often used in commodity trading. Treat a CIF LNG contract carefully. The seller pays for the ship, but the buyer carries voyage risk, and the cargo is measured at the unloading port under the GIIGNL practice described above.

## Side by side: what changes for the finance file

| Point                                                   | FOB                                                           | DES / DAP (delivered)                                                         | CIF / CFR                                         |
| ------------------------------------------------------- | ------------------------------------------------------------- | ----------------------------------------------------------------------------- | ------------------------------------------------- |
| Who arranges the ship                                   | Buyer                                                         | Seller                                                                        | Seller                                            |
| Where risk passes                                       | Loading port                                                  | Discharge port                                                                | Loading port                                      |
| Where energy is measured and invoiced (GIIGNL practice) | Loading port                                                  | Discharge port                                                                | Discharge port                                    |
| Who carries voyage financing                            | Buyer                                                         | Seller                                                                        | Seller pays freight; buyer owns cargo at sea      |
| Typical seller security                                 | LC or guarantee before loading                                | LC or guarantee against delivery                                              | LC before loading or against documents            |
| Diversion rights                                        | Buyer controls ship, subject to contract limits               | Seller controls ship; destination often fixed                                 | Depends on the contract                           |
| Main lender question                                    | Can the buyer control and insure the cargo during the voyage? | Can the seller fund and insure the voyage, and is the buyer good for payment? | Who controls documents while the cargo is at sea? |

## How delivery terms affect a letter of credit

A letter of credit has to match the delivery term. An FOB letter of credit usually pays against loading documents. A delivered letter of credit usually pays against discharge documents, such as an unloading certificate and quantity and quality reports from the discharge port. If the documents named in the credit do not fit the delivery term, the seller may not be able to present a compliant set, and the bank will not pay. Our article on [Incoterms and documentary letter of credit wording](https://blog.financely.io/incoterms-documentary-letter-of-credit-wording/) covers the wording issues, and [deferred payment letters of credit for LNG imports](https://blog.financely.io/deferred-payment-letter-of-credit-lng-imports/) covers longer payment terms.

## How delivery terms affect security and title

Under FOB, a lender to the buyer can take security over the cargo from loading, provided the buyer holds the shipping documents or the contract gives it control. Under a delivered term, the buyer never owns the cargo at sea, so a lender to the buyer cannot rely on the cargo as collateral until discharge. A lender to a delivered seller, on the other hand, can take security over the cargo and the insurance throughout the voyage. See [bills of lading and title control in LNG trade finance](https://blog.financely.io/lng-bills-of-lading-title-control-trade-finance/).

## Common mistakes in LNG delivery terms

- **Mixing terms.** Buying FOB and selling DES without allowing for the voyage, the ship and the change in measurement point.
- **Using "DES" without a definition.** If the contract does not say which rules apply, lenders and counsel will ask.
- **Letters of credit that do not match.** Loading documents on a delivered credit, or discharge documents on an FOB credit.
- **Ignoring boil-off and measurement.** The delivery term decides where the cargo is measured, which affects the invoice. See [LNG cargo quantity, boil-off and energy invoicing](https://blog.financely.io/lng-cargo-quantity-boil-off-and-energy-invoicing-in-trade-finance/).
- **Insurance gaps.** Each party should know when its cover starts and stops, and the lender should be named where it relies on the cargo.

## Which term is easier to finance?

Neither is easier in every case. A buyer with strong credit but no shipping capacity often prefers a delivered purchase, because it needs less voyage financing. A trader with ships and an FOB supply position can earn more but needs a larger cargo finance line. The question a lender asks is simpler: does the delivery term on each contract fit the financing structure, the documents and the cash flow? For the contract side, see [how LNG sale and purchase agreements affect financing](https://blog.financely.io/lng-sale-purchase-agreements-financing/).

Financely helps LNG buyers and traders line up delivery terms, documents and instruments before they go to lenders. Financely is an advisor and arranger only. See the [oil and gas trade finance advisory](https://www.financely.io/oil-and-gas-trade-finance-advisory-for-crude-oil-bonny-light-en590-diesel-gasoil-lng-jet-a1-and-refined-petroleum-product-transactions?ref=blog.financely.io) and [letter of credit structuring](https://www.financely.io/letter-of-credit-structuring-for-import-and-export-transactions?ref=blog.financely.io) pages.

## Frequently Asked Questions

### What is the difference between FOB and DES in LNG?

Under FOB the buyer takes the cargo at the loading port and arranges the ship. Under DES the seller ships the cargo and delivers it at the discharge port. Risk, measurement point and financing needs move with the delivery term.

### Is DES still an Incoterms rule?

No. The ICC replaced DES with DAP in the Incoterms 2010 revision, and DAP remains in Incoterms 2020\. Many LNG contracts still use DES by referring to Incoterms 2000 or defining the term in the contract.

### Where is an LNG cargo measured for invoicing?

Under the GIIGNL custody transfer handbook, energy is determined at the loading port for FOB sales and at the unloading port for CIF, CFR and DES sales.

### Which delivery term needs more trade finance?

The party that carries the cargo during the voyage needs more. That is the buyer under FOB and the seller under DES or DAP. Each side still needs payment security for the price.

**Have a live cargo or a signed contract?**

Send both contracts, the delivery terms and the draft letter of credit wording through the intake form. Financely checks whether the terms, documents and financing structure line up before any lender sees them.

[Submit your deal](https://www.financely.io/deal-submission?ref=blog.financely.io)

See how [letter of credit structuring](https://www.financely.io/letter-of-credit-structuring-for-import-and-export-transactions?ref=blog.financely.io) is scoped for import and export transactions.

*Financely is an advisor and arranger. It does not lend, issue instruments or take title to cargo, and no financing outcome is promised. This article is general information, not legal, tax or sanctions advice.*

Sources and references (checked 14 November 2026)

1. [ICC, The Incoterms rules 2010](https://iccwbo.org/news-publications/icc-rules-guidelines/incoterms-rules-2010/?ref=blog.financely.io)
2. [ICC, Incoterms 2020](https://iccwbo.org/business-solutions/incoterms-rules/incoterms-2020/?ref=blog.financely.io)
3. [GIIGNL, LNG Custody Transfer Handbook, 6th edition (PDF hosted by Snam)](https://www.snam.it/content/dam/snam/pages-attachments/it/i-nostri-business/rigassificazione/documents/codice-tariffe-area-comitato/codice-di-rigassificazione-fsru-italia/manuali-terminale/giignl%5Fcustody%5Ftransfer%5Fhandbook%5F6.0%5F-%5Fmay%5F21%5F0-1.pdf?ref=blog.financely.io)