FOB – Free On Board – is a very commonly used Incoterm, particularly in China/Hong Kong and other parts of Asia. While it is supposed to be used only for ocean or inland waterway transport I have seen instances of shippers using it for air shipments as well. There are a number of Incoterms that are wrongly used for air shipments despite their definition and this is one of them.
In FOB – Free On Board – the seller/exporter arranges for the goods to be delivered onto the vessel at the named port of departure. The named place of origin in the sales contract will always be â€œdomesticâ€ to the seller. For example, if I was selling containers of hard drives from Yantian, China, I might sell it to an importer in Los Angeles on an â€œFOB-Free On Board ABC Vessel, Yantian, Chinaâ€ basis.
Under FOB terms, the sellerâ€™s risk and responsibility end the moment the goods are delivered onto the vessel at the named port of origin :
1) Produces the goods and commercial documents as required by the sales contract.
2) Arranges for export clearance – IF stipulated in the sales contract.
3) Makes the goods available to the buyer after being loaded on the vessel at the named port of shipment.
4) Assumes all risk to the goods (loss or damage) only up to the point they have been delivered onto the vessel at the named port, place, and time stipulated in the sales contract.
5) Seller must advise the buyer of the location and time that goods have been delivered onto the named vessel.
6) Seller has to provide the buyer with proof of delivery to the carrier or transport documents.
1) Buyer must pay for the goods as per the sale contract
2) Buyer must obtain all commercial documentation, licenses, authorizations, and import formalities at own risk and cost.
3) Buyer must take delivery of the goods after they have been delivered by the seller onto the vessel at the named port of origin.
4) Buyer must assume all risk and responsibility for the goods from the time the goods have been delivered onto the vessel to delivery into the buyerâ€™s warehouse or other specified location.
5) Buyer pays for all costs of transportation, insurance, export and import customs and duty fees, and all other formalities and charges related to the transportation of the shipment from the time the goods have been delivered onto the vessel. This includes all costs relating to loss or damage of goods or non-delivery from the time the goods have been delivered onto the vessel.
6) Buyer would accept the sellerâ€™s proof of delivery to the carrier or transport documents.
This interpretation is provided as a guide only.
Incoterms are published by the International Chamber of Commerce and are available on their website and official publication â€œIncoterms 2000â€³. For a complete and official overview please refer to the ICCâ€™s publication.