The FOB 2020 Free on Board Incoterm is the most commonly used commercial term.
Originating from the era of transport by sailing ships, it is used for buying and selling operations in which the goods are transported by ship, either by sea or inland waterway. The FOB Incoterm must always be used followed by the name of the port of loading. FOB is one of the most commonly used incoterms.
Responsibilities in the FOB Incoterm
According to the rules of Incoterms 2020, and even in previous versions of Incoterms 2020, the seller has to place the goods on board the ship of the buyer’s choice. It is at this point that liability for loss or damage to the goods falls directly on the buyer.
Incoterm 2020 Fob Free On Board, or ‘On Board’ is not defined as placing the goods ‘on the deck of the ship’ or any other similar expression, as everything depends on what is established in the contract according to the type of goods in question.
Furthermore, the cost of transport is borne by the buyer. This is because the freight invoice is generally indicated as ‘freight collect’. The seller will thus carry out all the export formalities, while the buyer will take care of the import formalities.
However, the use of the 2020 FOB ‘Free On Board’ Incoterm is inappropriate when the goods are transported in containers, as the cargo is delivered to the carrier at a place some distance from the port, such as a container yard or even the seller’s premises.
Obligations of the seller under the FOB Incoterm
- Supply goods and invoice as specified in the contract.
- Clear the export goods, applying for and obtaining the appropriate permits, and paying the applicable taxes and duties.
- Deliver the goods on board the vessel arranged by the buyer at the agreed port.
- The buyer is responsible for risks and costs related to the goods until delivery on the ship.
- To assist the buyer at the buyer’s expense in obtaining the necessary import documents or taking out insurance.
Obligations of the buyer under the FOB Incoterm
- Pay the price as specified in the sales contract.
- Clear the goods for import, and obtain the relevant authorisations and licences, while paying the necessary duties and taxes.
- Accept delivery of the goods if they are delivered as agreed.
- Bear the risk of loss or damage to the goods from the time the goods are on board the ship or from the expiry of the date agreed with the seller for reasons beyond the seller’s control (e.g. the ship selected by the buyer does not dock on time).
- Pay the costs as soon as the goods are delivered on board the ship.
Advantages and disadvantages of the FOB Incoterm
- Advantages. For many sellers and buyers, it is one of the most widely used alternatives in this type of transport, especially because it allows greater control over the process and the related costs that correspond to each of the parties to the contract.
- Disadvantages. Unfavourable conditions are especially common for importers or exporters who are unfamiliar with processes or experienced in exporting. If this is the case, other examples such as the CIF Incoterm may be more suitable for your first international purchases.
For more information about Incoterms 2020 or to request a quote for your international shipments, contact us and we will answer all your questions.
