Disadvantages for buyer under FOB terms of delivery
Now we can discuss about the demerits for importers when contracting delivery terms on FOB basis in export import business.
Here below explains the challenges for buyer under delivery terms, FOB:
01. One of the major challenges for an importer is that under FOB, buyer takes higher risks from seller’s named load port to his place for movement of goods.
02. Another important disadvantage for importer under FOB terms is that initial investment to move goods from seller’s loading port to buyer’s premises is required to meet by the buyer. This cost may be more than 150% sometimes higher than cost of manufactured goods for sale, if both exporter and importer situate far.
03. Rules and regulations of government in buying country for import customs clearance, movement of goods and duties and taxes involved are required to be learned and experienced by the importer under FOB delivery terms. There are chances of unexpected costs than anticipated expenses. This is another disadvantage for importer under FOB terms.
04. Another demerit for importer under FOB terms is that the safety of goods can be directly taken care only after arriving goods from destination port of discharge although the seller delivers the goods on board the vessel. The main carriage is undertaken by a shipping carrier who is a third party, and the safety is connected with insurance. The risks during on carriage are also under the responsibility of importer under FOB. This is a disadvantage for buyer under FOB terms of delivery.
05. Another challenge for importer under FOB is that the buyer is responsible for main carriage, any port congestion or delay in arriving, berthing, cancellation of vessel, or any other unexpected incidents occurs under FOB terms of delivery.
06. Although, the buyer controls main carriage (ocean freight) he needs original bill of lading for import customs clearance for which he has to take the help of exporter to release Bill of Lading at Seller’s country. This is another disadvantage for importer, if terms of delivery are FOB terms. (However, Incoterms 2020 suggests solutions for this demerits)
07. Overseas business turnover (amount of foreign outward remittance) is minimized up to the level of cost of movement of goods which may affect the importers for import finance. This is another disadvantage for importer, as foreign exchange loss is treated adversely for economic growth of country.
The above information is about the disadvantages for importers when delivery terms are on FOB basis.
You may share below your thoughts about FOB and its disadvantages to buyer under Incoterms 2020: