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Free On Board (FOB) is a trade term indicating the point at which a buyer or seller becomes liable for goods being transported on a vessel. LinkedIn with Background Education. 28/07/ · FOB (Free On Board) One of the most commonly used-and misused-terms, FOB means that the shipper/seller uses his freight forwarder to move the merchandise to the port or designated . FOB (Free on Board) is the most commonly-used trade term but in practice it is used without reference to any version of the Incoterms® rules. In such cases it is then up to the seller and buyer to agree in their contract on what they mean when they use these three letters. By using FOB the seller must clear the goods for export and delivers when the goods pass the ship’s rail at the agreed port. This term is only used for water transportation either sea or inland water. If both parties do not agree to have goods delivered on board, then FCA is the term to be used.
FOB and CIF are International Commercial terms, or Incoterms, as they are popularly known. There are lots of acronyms, all 3 lettered, and having a predefined meaning that is easily understood by both buyers and sellers in international trade. In fact, Incoterms is a registered trademark of the International Chamber of Commerce. However, people are always confused between CIF and FOB because of many similarities.
This article attempts to differentiate between these two Incoterms to remove all doubts from the minds of readers. FOB stands for Free on Board, and is a contract between the buyer and seller, where the seller has to load the goods himself on a vessel that has been nominated by the buyer. It is the duty of the seller to clear the goods for export, and the cost as well as risk is clearly divided between the buyer and seller when the goods are on the vessel.
The details of the port and the vessel have to be intimated by the buyer to the seller. CIF stands for Cost, Insurance, and Freight and seller has to pay all the costs along with freight to bring the goods to destination port. However, as soon as goods are loaded on to the vessel, the risk gets transferred on to the buyer. It also stipulates the seller to arrange for, and pay for insurance of the goods.
Talking of differences, once goods have been loaded on to the vessel, they become a risk of the buyer in case of FOB.
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In such cases it is then up to the seller and buyer to agree in their contract on what they mean when they use these three letters. Get started Introduction to Free on Board FOB. From that point on risk of loss or damage to the goods transfers to the buyer. The seller must carry out all export formalities and the buyer must carry out import formalities. The buyer contracts for carriage therefore the shipper on the bill of lading should be the buyer not the seller.
Often where there is a letter of credit involved the seller is shown on the bill of lading as the shipper, in which case the seller would be wise to inform themselves of the additional liabilities they might be taking on under the terms and conditions of the bill of lading. Free on Board FOB Incoterms Rule — Introduction, History and Uses. The requirement is that the buyer must contract for the vessel or space on the vessel, and the seller must load the goods onto that vessel.
Sellers should be wary of doing this, and it will depend on the customary procedures in the relevant countries as to whether this is practical, desirable or could have unfortunate legal consequences for the seller. The contract should lay out very specifically what is required of the seller and limit their liability if they are to be declared as the shipper or consignor. This provision seems a little at odds with how FOB is supposed to work.
Whether it has a place now in the world of sea transport is a good question. In each of the eleven rules the seller must provide the goods and their commercial invoice as required by the contract of sale and any other evidence of conformity such as an analysis certificate or weighbridge document etc that might be relevant and specified in the contract. Each of the rules also provides that any document can be in paper or electronic form as agreed to in the contract, or if the contract makes no mention of this then as is customary.
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In CIF, the seller is responsible for transporting goods to the nearest port, loading the goods on the ship and paying freight for the goods to be delivered to a port chosen by the buyer. FOB is a term, which means that the seller only pays for product transportation up to the shipment or export port. They will also pay for the loading costs onto the vessel.
Free On Board FOB is a shipment term used to indicate whether the seller or the buyer is liable for goods that are damaged or destroyed during shipping. There are two major terms of shipment widely used round the globe. These are freight on board FOB and cost net freight CNF. With Ex works, the seller makes the product available at a designated location, and the buyer incurs transport costs. With Free on Board, the seller is responsible for the goods until they are loaded on a shipping vessel; at which point, all liability transfers to the buyer.
However, the difference between the two is clear: Using EXW, you are responsible for all costs associated with your transport to the UK, whereas, with an FOB agreement, you are only accountable for the costs that come after your goods have boarded the ship or aircraft , as your supplier is responsible for the local …. The buyer does not pay any shipping costs. FOB Destination, Freight Collect: The receiver of goods the buyer pays the freight charges upon delivery of the goods.
Free on Board means the seller is responsible for the product only until it is loaded on board a shipping a vessel, at which point the buyer is responsible.
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Free on Board FOB is an Incoterm which dictates the shared responsibility between buyer and seller. A standard FOB arrangement states that the responsibility for the goods remains with the seller as far as the port selected for shipping. At this point, full responsibility and ownership passes to the buyer and the seller records it as a completed transaction. After the goods leave the port, the buyer is responsible for the documentation necessary to complete a safe journey.
This includes all customs documents, certificates of conformity COC , and insurance coverage. If anything happens to the goods after the ship has left port, the responsibility stands with the buyer. While not on the scale of an Ex Works agreement, the FOB shipping arrangement still puts the majority of the responsibility on the buyer. Regardless of any advice offered, once the ship is loaded, the responsibility of the seller ends.
After the goods are loaded onto the ship, the whole responsibility of the transit and freight belongs to the buyer. If the goods are damaged, it is the responsibility of the buyer to make sure that they are adequately insured and to make the appropriate claim as the buyer has a title ownership to the goods during this period.
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An importer need to look into the options of buying the goods under the terms that are more favorable to his or her expenses. We suggest you should always choose FOB shipping between you and your supplier. But why? The short answer is by doing this, it will greatly reduce your shipping costs and give you more control over the shipment. Quite a few buyers come to us and ask our comments about choosing EXW for the max control of the goods.
If you have ever looked into the meaning of EXW, you may change your decision. When the truck arrived at the warehouse or the manufacturer, the supplier even has no obligation to loading on it. Not mentioning the customs declaration at the loading port. All export clearance documents and procedures are included in the FOB price.
Importers are wise to avoid hassle and simply stick to FOB. Yes, we can do all the stuff for you if you insist on EXW.
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And while no two countries have exactly the same laws, when it comes to freight there are many precepts that are standardized worldwide. This means that no matter where you ship from, you will encounter the same regulations. One of the most prominent examples of this standardization is the International Commercial Term, or incoterm. Simply put, an incoterm is the standard contract used to define responsibility and liability for the shipment of goods.
It plainly lays out how far along into the process the supplier will ensure that your goods are moved and at what point the buyer takes over the shipment process. It also has implications for your total freight costs. Of the 11 different incoterms that are currently used in international freight, Free on Board FOB is the one that you will encounter most frequently. This guide cuts through the legal jargon and explains everything you need to know about this common incoterm in plain English.
Once on the ship, all liability transfers to the buyer. Expert’s Note The FOB incoterm is only applied to shipments being sent by sea or waterway.
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This term is only used for water transportation either sea or inland water. If both parties do not agree to have goods delivered on board, then FCA is the term to be used. When goods are packed in containerized cargo, then FCA is the most recommended term to use. Because goods will be delivered in the container terminal prior to being loaded on the vessel. The term is used in commodities like oil, bulk cargo or grain.
There is a common misuse of this term when goods are loaded onto a truck, in that case FCA is the right term to use. In FOB, origin terminal handling charge and all other costs associated to move the goods on board are paid by the seller. FOB suits better for bulk cargo and not containerized cargo use FCA instead. All cost after loaded onboard must be assumed by the buyer.
Export customs clearance and origin terminal handling charge must be assumed by seller. This term is traditionally created for bulk transportation, where some cargo can be lost during the process of loading i.
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First, let’s define what FOB (free on board) means by breaking it down word-by-word. The term ‘free’ refers to the supplier’s obligation to deliver goods to a specific location, later to be transferred to a carrier. In other words, the supplier is “free” of responsibility. ‘On . 27/02/ · Free On Board (FOB) is a trade term indicating the point at which a buyer or seller becomes liable for goods being transported on a vessel. more What Is Carriage Paid To (CPT)?
The rules have been developed and maintained by experts and practitioners brought together by ICC. They have become the standard in international business rules setting. The trade terms help traders avoid costly misunderstandings by clarifying the tasks, costs and risks involved in the delivery of goods from sellers to buyers. Nevertheless, it is important to clearly specify the chosen version.
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International Chamber of Commerce.