Egypt mulls buying wheat on a CFR, not FOB basis, to secure supply

Egypt’s state grain buyer is considering shifting its wheat tender process to a destination basis, with the world’s biggest importer looking to secure volumes as Covid-19 quarantine-related measures threaten to disrupt traditional supply chains.

General Authority for Supply Commodities (GASC) is mulling a change to CFR from FOB tenders, according to a story first published by Reuters on Sunday.

GASC typically buys wheat via two separate tenders that run in tandem – one to cover the cargo and another to cover shipping.

It currently buys its wheat on a FOB basis, meaning that it takes ownership of a cargo once it is loaded onto a vessel at an origin port.

Under the proposed changes, sellers would instead sell on a CFR basis – a term that indicates a seller assumes responsibility for goods until they arrive at a destination port of a buyers’ choosing.

The Reuters story said GASC is also considering paying for its cargoes at sight via a letter of credit, rather than with deferred payment dates that accrue interest from lenders.

GASC did not respond to a request for comment.

However, trade sources were keen to stress that a decision is still to be made.

“They are still thinking… Nothing changed yet,” an Egyptian grains trader said.

It comes after GASC issued a tender last week that would have required sellers to switch to alternative origins at their own cost if Covid-19 related logistical issues in an exporting country threatened to delay loading.

The trade balked at GASC’s change to its standard tender specifications, with the buyer pulling the tender soon after due to a lack of selling interest.

Should the change come to fruition, some expect that GASC’s tenders could become even more competitive.

“The spread between different origins will tighten. You have a $5-6/mt spread between France and Russia at (origin) and a $2-3/mt freight spread (at destination) usually,” a trader told Agricensus.

Egypt is the world’s biggest wheat importer and is expected to buy around 12.5 million mt in the 2019/20 marketing year, with GASC accounting for around half that volume.