Drawbacks for Exporters under FOB terms of delivery
This post is about the demerits for exporters when contracting FOB terms of delivery under exports and imports.
The following disadvantages for sellers are observed under FOB delivery rules:
01.Since minimum risks are involved for an Exporter under FOB delivery rules, minimum profit is expected. This is a demerit for an exporter under FOB terms of delivery.
02. One of the main disadvantages for seller under FOB terms is that the exporter does not have any control over main carriage, import clearance and on carriage of goods to final destination. The tracking of shipping details is depended with the buyer as he undertakes main carriage and on carriage contract.
03. The exporter should be familiar with government rule and regulations on export process, taxes to export his product and other documentary process, under FOB terms. This can be treated as a disadvantage for exporter under FOB delivery terms because, the risks and costs involved due to the lack of knowledge in export process is under exporter’s shoulder in international business.
04. Since the seller transfers his risks and costs to buyer once onboard the goods, under FOB terms, the safety of goods cannot by monitored by the exporter in international business. This is a drawback for exporters under FOB terms.
05. Another disadvantage for exporter is that under FOB terms of delivery, costing at each point of movement of goods , say main carriage, import customs clearance expenses, destination port handling, on carriage to buyer’s final destination etc. cannot be ascertained by the Exporter.
06. The main carrier is decided by the importer under FOB terms, and the buyer holds control over documentation, shipping details and further movement of goods. This is another disadvantage for exporter under FOB delivery term.
07. One of the another disadvantage for seller under FOB terms of delivery is that the unit cost would be less under FOB sales; thereby less invoice value of goods. The exporter gets less foreign exchange. Sometimes, the total invoice value of goods could be twice lesser than the actual delivery cost, if both buyer and seller situates too far. This is a demerit for exporter, if contract of carriage is on FOB basis in export import business.
08. Since main carriage is undertaken by the importer, the exporter may not have right to release Bill of lading or AWB from the main carrier, as such documents are required for the exporter for various statutory records and claiming export finance and incentives. This is another disadvantage for exporter when the contract of carriage is FOB. However the exporter and importer mutually agree in sale contract by allowing the exporter to release shipping documents for both of their convenience.
The above information is about drawbacks to exporters under FOB delivery rules.
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