Free On Board - FOB

Free On Board - FOB
See also

Free On Board (...named port of shipment) - FOB is the Incoterm of F's group, it means that sellers obligated to provide issues connected with delivery commodities to the carrier. „An international trade expression of sale in which, for the quoted price, the seller, exporter or manufacturer clears the goods for export and is responsible for the costs and risks of delivering the goods past the ship’s rail at the named port of shipment” [1]. Ocean or inland waterway transport is obligated to used exclusively FOB term. „On Board Bill of Lading” is the main document in FOB transactions. The FOB term and the Free Carrier (FCA) term are often confused by the sellers and the buyers. In reference to delivering the goods past a ship's rail in the ocean or inland waterway transport, we use FOB.

The seller’s obligations

Seller is responsible for services and costs relating to allocating the goods [2][3]. The seller also clears the goods for export[4].

The most important establishments for sellers[5]:

  1. General obligations: the trader has to give the goods and the commercial statement in conformity with the agreement of sale and any other documents of conformity that might be needed by the agreement; the seller must inform the buyer when he delivers the goods on the desirable place
  2. Formal documents: include licenses, security clearances and authorizations; contracts of freight and insurance; the permission for export of a commodity
  3. Delivery: the seller is obligated to deliver the commodities to the shipment place (following to contract between seller and buyer – the place which is stated by the buyer)
  4. Risks: the risks of loss or damage to the goods incurred by the seller until the goods will be on the ship's board; the full responsibility for damage or loss the goods before embarking them to the ship takes the seller
  5. Seller's costs: the trader must pay all expenses connected with the goods until they have been delivered, and also when it is necessary, the expenses of customs formalities connected with export (e.g. taxes, duties) - „The shipper’s duties and expenses have to be borne either by the seller or by the buyer, depending on the contract”
  6. Document of delivery: the seller is obligated to submit the proof of delivery the goods to the desirable place to the buyer

The buyer’s obligations

The buyer is responsible for a later phase of the business – the shipment and export of the goods[6][7]."The buyer coordinates the main international transport, although if it is commercial practice, or at the buyer’s request, the seller may organize carriage at the risk and expense of the buyer"[8].

The most important establishments for buyers[9]:

  1. General obligations: the buyer is obligated to pay the price of the goods; the buyer is obligated to inform the seller of the place where the seller has to deliver the goods (desirable place)
  2. Formal documents: include licenses, security clearances and authorizations; the documents required for import the goods; the permission for import of a commodity; the buyer does not have to make an insurance's arrangement insurance with seller
  3. Delivery: the seller is obligated to take delivery of the commodities from the desirable place (following to contract between seller and buyer – the place which is stated by the buyer)
  4. Risks: the risks of loss or damage to the goods incurred by the buyer from the time when the goods will be load on the ship's board; from the delivery time the full responsibility for damage or loss the goods takes the buyer
  5. Buyer's costs: the buyer must pay all expenses connected with the goods from the time they have been delivered, and also when it is necessary, the expenses of customs formalities connected with import (e.g. taxes, duties) – „The shipper’s duties and expenses have to be borne either by the seller or by the buyer, depending on the contract”
  6. Document of delivery: the buyer has to accept the proof of delivery the goods to the desirable place from the seller

What is important of the seller's and buyer's obligations is that the seller's risk passes only after loading the goods aboard the ship. Trucks crash, port warehouses catch fire, cranes topple during loading or when goods have been stolen from containers on the piers – all of these accidents could happen. In reference to these circumstances – the risk bears to the seller who often does not be aware of that.

Footnotes

  1. Hinkelman E.G., (2008), p.81
  2. Ramberg J., (2011), p.172-176)
  3. Lorenzon F., David M. S., (2012), p.317
  4. Malfliet, J. (2011), p.166
  5. Lorenzon F., David M. S., (2012), p.317
  6. Ramberg J., (2011), p.177-181
  7. Lorenzon F., David M. S., (2012), p.321
  8. Malfliet, J. (2011), p.166
  9. Lorenzon F., David M. S., (2012), p.317

References

Author: Natalia Zajko