What is FOB?
FOB is one of the commonly used trade terms in international trade. The full name of FOB is free on board, that is, free on board (… Designated port of shipment), which is customarily called free on board at the port of shipment.
If the transaction is concluded according to this term, the buyer shall be responsible for sending a ship to pick up the goods. The Seller shall load the goods on the vessel designated by the buyer within the port of shipment and the specified time limit specified in the contract, and notify the buyer in time. When the goods cross the ship’s rail during shipment, the risk is transferred from the seller to the buyer.
Under the condition of FOB, the Seller shall bear the risks and expenses, obtain the export license or other official documents, and be responsible for handling the export procedures. When the fob term is adopted, the Seller shall also provide at its own expense a certificate proving that it has completed its delivery obligations as required. If the certificate is not a transport document, the seller can provide assistance to obtain a bill of lading or other transport documents at the buyer’s request and at the buyer’s risk and expense.
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Interpretation of FOB terms
The basic obligations of the buyer and the seller are divided according to the interpretation of FOB by the International Chamber of Commerce, and the basic obligations undertaken by the buyer and the seller respectively. To sum up, it can be divided as follows:
FOB seller’s obligations
- Deliver the goods to the ship designated by the buyer in a customary manner at the port of shipment within the time or period specified in the contract, and notify the buyer in time.
- Obtain an export license or other official approval at its own risk and expense. When customs formalities need to be handled, all customs formalities necessary for the export of goods shall be handled.
- Bear all expenses and risks until the goods cross the ship’s rail at the port of shipment;
- At its own expense, provide the usual documents proving that the goods have been delivered to the ship. If the buyer and the seller agree to adopt electronic communication, all documents can be replaced by electronic data interchange (EDI) information with the same effect.
FOB buyer obligations
- Obtain import license or other official approval documents at its own risk and expense. When it is necessary to go through customs formalities, handle all customs formalities for the import of goods and the transit through other countries, and pay relevant fees and transit fees;
- Be responsible for chartering or booking space, paying freight, and giving the seller the name of the ship Sufficient notice of the place of shipment and the required delivery time;
- Bear all expenses and risks after the goods cross the ship’s rail at the port of shipment;
- Accept the relevant documents provided by the seller, receive the goods, and pay for the goods in accordance with the contract.
Other information about FOB
When the transaction is concluded on FOB terms, the Seller shall be responsible for paying all expenses before the goods are loaded on board. However, there is no unified explanation for the concept of “shipment” in various countries, and the customs or practices of various countries are not completely consistent.
If liner shipping is adopted, the ship will load and unload, and the handling fee will be included in the liner freight, which will naturally be borne by the buyer in charge of chartering; However, the ship owner generally does not bear the loading and unloading costs when using voyage charter transportation. It is necessary to clarify who should bear the costs of shipment.
In order to explain the burden of shipping costs, both parties often add additional conditions after the fob term, which forms the deformation of FOB. It mainly includes the following:
- FOB liner tends:
It refers to that the shipping cost is handled according to the practice of the liner, that is, it is borne by the ship or the buyer. Therefore, with this deformation, the seller will not bear the relevant expenses of shipment.
- FOB under tack:
It means that the Seller shall deliver the goods to the place where the hook of the vessel designated by the buyer reaches the seller’s expense, and the hoisting into the hold and other expenses shall be borne by the buyer.
- FOB stowed (including FOB cabin management fee):
It means that the seller is responsible for loading the goods into the hold and bearing the shipping expenses including the cabin management fee. The cargo handling fee refers to the cost of arranging and sorting the cargo after it is loaded.
- FOB trimmed (including FOB leveling fee):
It refers to that the seller is responsible for loading the goods into the hold and bearing the shipping expenses including the leveling fee. Leveling fee refers to the cost of leveling the bulk cargo loaded into the cabin.
In many standard contracts, FOBST (FOB stowed and trimmed) is often used to show that the seller should bear all the shipping costs, including cabin management and peacetime. The above deformation of FOB is only to show who bears the shipping cost and does not change the FOB delivery place and the boundary of risk division.
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