Useful Information - Incoterms

Incoterms - FOB

FOB (Free On Board) is one of the commoner trade terms in use. Yet this 'common' aspect of the term has resulted in the myriad definitions found all over the world for FOB.

Some of these directly contradict others, and many are supported by domestic legislation making such definitions unique to a specific country or port.

In defining FOB as an INCOTERM, it is expressed as being Monomodal and it can only be used for transactions where seafreight is the main carriage. Therefore, as an INCOTERM, there is no application for FOB in road, rail or air transport.

Under INCOTERMS 2000, risk and responsibility pass from the seller to the buyer when the goods pass over the (named or unnamed) ship's rail at the (named) port of loading, cleared for export by the seller.

For FOB to apply, the seller must be in the physical position of being able to load the cargo over the rail under their own direct control i.e. the loading is undertaken by the seller's own labour, or by an agent that is under the contractual control of the seller. Further this process would have to be monitored by both the seller and buyer or their representatives.

Generally, from the modern deep-sea export perspective, this control often cannot be achieved as the seller is either not allowed into the harbour area or, even in those extreme circumstances where they are, they have no influence over the party loading the vessel.

The INCOTERM FOB still has an application in some markets, but these are more and more in the minority. Note that the use of an 'on-board' Bill of Lading or mate's receipt could be appropriate in recording the passage of risks under FOB making FOB one of the few terms still unavoidably dependant on such documents.


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