Understand the meaning of FOB under Incoterms

FOB – Free On Board (named place) Incoterms 2020

Under FOB term, the risk and costs of movement of goods transfers from Seller to Buyer, once the goods are loaded on the vessel nominated by the buyer.  So under an Export Import trade, the obligation of  exporter ends, when the goods gone on board the vessel, under FOB terms of delivery.    The seller is responsible for the costs and risks involved in packing of goods, pre carriage (local transportation), export documentation, load port handling charges and Customs clearance at load port.  The buyer takes care of the costs and risks of main carriage, import customs clearance and duties and on carriage to his premises.

The FOB terms of delivery as per Incoterms 2020 designed by ICC  is used for marine modes of transport.  Since the goods for exports cannot be placed by the seller near the Aircraft for onboard due to security reasons, the definition of the term FOB is irrelevant under Incoterms 2020 rules by ICC, for the movement of goods by Air.  So, the  FOB terms of delivery  is widely used by traders, exporters and importers for the movement of goods by sea and inland waterways.  However, some of the importers and exporters use FOB terms to move their goods by Air also, by designing the rules themselves, incorporating the meaning and understanding on the term mutually agreed under their Sale Contract.   

Who arranges insurance under FOB terms?   As mentioned earlier, Incoterms 2020 rules does not talk about Insurance under FOB, neither the seller nor the buyer is responsible to arrange insurance on movement of goods.  However, the importers or exporters may arrange insurance as per their mutual agreement under Sale contract.

Under FOB terms, the buyer contracts main carriage with the shipping carrier and possess the control over freight and documentation. 

According to Incoterms 2020, an FOB sale raising doubt about the port of shipment leaves both parties uncertain as to where the buyer must present the ship to the seller for the shipment and the transport of the goods—and as to where the seller must deliver the goods on board so as to transfer risk in the goods from seller to buyer.  So, If FOB terms are used, the buyers and sellers may make clear understanding and specific in their sale contract about the named place of delivery of goods for on board the Vessel geographically.

Kindly note, the term Ship rail (Shipped  Onboard the Rail / Shipped on Rail) used under Incoterms 2000  has been discontinued since Incoterms 2010 by ICC.  So, importers or exporters using the term SHIPS RAIL/SHIPPED ON RAIL/SHIPPED ON BOARD THE RAIL is invalid, if they quote Incoterms 2020 or Incoterms 2010 in their Sale Contract. Click here to read about Ex-works, FOB,FCA,CPT,CIP,DAP,DPU,DDP,FAS,CFR and CIF  under INCO TERMMS 2020

FOB – Free On Board (named Places)

 The above deatails explains about Free On Board (FOB) rules for movement of goods designed by ICC under Incoterms 2020.  Share your knowledge and experience if any below about FOB.

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