What’s FOB Incoterms? What should the buyer does under FOB condition? What should the Seller does under FOB condition? Why choose FOB Incoterms? When not use FOB Incoterms? What should be paid special attention to when using FOB terminology?
The Things You should Know About FOB Incoterms
What’s FOB Incoterms
What should the buyer does under FOB condition
What should the Seller does under FOB condition
Why use FOB Incoterms
Why nor use FOB Incoterms
What should be paid special attention to when using FOB terminology
What’s FOB Incoterms
FOB , also known as "Free On Board", is one of the 11 Incoterms that distinguish the responsibilities of buyer and seller, including freight and managing the shipment, insurance, document, customs clearance, and other logistical activities. Under FOB condition, when the goods cross the rail of the ship when loading (means goods are on board), the responsibilities, along with the risks, is transferred from the seller to the buyer. Following shows the specific responsibilities for seller and buyer under the terms of FOB:
Free On Board
Delivery to Port/Place
Export Customs Clearance
Origin Terminal Handling Charges
Destination Terminal Handling Charges
Delivery to Destination
Unloading at Destination
Import Duty, Taxes
Export Customs Clearance
What should the Seller Does Under FOB Condition?
1. Goods, commercial invoice and document
2. Export packaging and marking
3. Export licenses and customs formalities
4. Pre-carriage and delivery
5. Loading charges
6. Delivery on board vessel at named port of shipment
7. Proof of delivery
8. Cost of pre-shipment inspection
What Should the Buyer Does Under FOB Condition?
1. Payment for goods as stipulated in sales contract
2. Main carriage: International transportation, as from the departure point on the seller′s side to the arrival point on the buyer′s side.
3. Discharge and onward carriage
4. Import formalities and duties
5. Cost of pre-shipment inspection (for import clearance)
Why Choose FOB Incoterms?
For buyers, FOB is usually the most cost-effective option. Because compared with CIF, they are not required to pay high fees to their sellers. Besides, under FOB condition, buyers are able to find their own freight forwarder, thus, they will have more control over the freight timing and cost. Moreover, they will have better access to tracking their commodities through their own freight forwarder.
For sellers, under FOB condition, they have less responsibilities toward the goods. As long as the products leave their warehouse and are loaded on board, sellers can mark the sale as “complete” and not worry about any additional cost and problems.
When Not Choose FOB Incoterms?
It is not recommend that new importers use FOB Incoterms, because they don’t fully understand the intricacies of the overseas shipments and in this case, buyers might make mistakes that have severe penalties. Therefore, new buyers might choose CIF Incoterms until they have better knowledge and experience of the importation process. Or, new buyer can choose a reliable freight forwarder to help them do business under FOB conditions.
What should be paid special attention to when using FOB Incoterms?
The exact meaning of "the ship's side as the boundary"
Regarding shipment ship's rail as the boundary between the buyer and seller's charter risk is one of the important differences between FOB, CIF, CFR and other trade terms. "The ship's rail is bounded" indicates that the risks are all borne by the seller before goods are loaded on the ship, likewise, after the goods are on the ship, the buyer shall bear the responsibility.
However, regarding "ship's rail as the boundary" cannot be used as a boundary to divide the responsibilities and expenses borne by the buyer and seller, because the loading operation is a continuous process, which includes the lifting of the cargo from the shore and the crossing of the ship's rail and then load into the cabin. If the seller assumes the responsibility for shipment, he must complete the above operations. Under normal circumstances, the seller has to bear the main cost of loading, excluding the cost of stowage and trimming.
Disclaimer: The content here is for informational purpose only. Seabay Logistics does not represent or endorse the accuracy or reliability of any advice, opinion, statement or other information provided.
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