Incoterms : FOB – Free On Board

Posted by Posted date Incoterms 2000 3 comments


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 “domestic” 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 “FOB-Free On Board ABC Vessel, Yantian, China” basis.

Under FOB terms, the seller’s risk and responsibility end the moment the goods are delivered onto the vessel at the named port of origin :
Seller’s Responsibilities:
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.
Buyer’s Responsibilities:
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 buyer’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 seller’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 “Incoterms 2000″. For a complete and official overview please refer to the ICC’s publication.

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  • Rob July 8, 2006 5:10 pm edit

    In the old days of airfreight people used (misused) the term FOB to mean that the buyer was paying for the airfreight(which normally included cartage to the airport). It was meant to draw distinction between prepaid airfreight appearing on the commerical invoice and collect airfreight that was invoiced by the airline. Again, it was a total misuse of the term, but it was pretty common.

    Now that LC’s are so much less common, Icoterms in general are much less often used. But twenty years ago there was a big difference between “FOB air” and regular FOB.

  • 3plwire July 8, 2006 6:30 pm edit

    Rob,
    Appreciate the insight. Even today I still see the misuse of the FOB incoterm on commercial invoices. I think that the misusage (at least here in the U.S.) stems from the U.S. UCC term FOB, which has an entirely different meaning and application than the Incoterms 2000 definition. The FOB Incoterm is strictly for ocean shipments and cannot be correctly applied to any mode of transport that involves air.

    Incoterms in general still play an extremely valuable role in international trade today and if I was negotiating pricing with my overseas supplier I would absolutely include the agreed upon Incoterm as part of the international sales contract.

  • Rob July 9, 2006 10:34 am edit

    Incoterms are of course still useful in the purchasing arena. I only meant to say that they are less often used in transportation circles, as fewer LCs are involved in international transactions and thus less often a consideratioin when processing shipping documents.

    Let me also clarify my quick comment of above. “FOB Air” was meant to describe a situation where the seller/export forwarder prepaid the door to airport transportation, and then billed it on the commmercial invoice. That would be in contrast to shipping product “freight collect” where no shipping charges appeared on the commmerical invoice, the HAWB was freight collect and the customs broker collected the door to door shipping charges from the importer.

    I’m not sure if the term is used like this anymore, but that was the case in my time as a forwarder.

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