Incolearn – Learning more about Incoterms 2000

FREE ON BOARD (FOB) PART IV – Summary and Conclusion The International Chamber of Commerce (ICC) defines the fourth Incoterm, Free on Board (FOB), at a named port of shipment, as “the seller delivers when the goods pass the ship’s rail at the named port of shipment. This means that the buyer has to bear all costs and risks of or damage to the goods from that point. The FOB term requires the seller to clear the goods for export ”. Previously we introduced FOB and then considered the ten obligations that the seller and buyer might need to fulfil in terms of FOB, as defined by Professor Jan Ramsberg, the chairman of the ICC Working Party on Trade Terms. In accordance with the description of FOB, the seller is required to clear the goods for export and this term can only be used for sea or inland waterway transport. It is important to remember that if contracting parties do not intend to deliver the goods across the ship’s rail, the Free Carrier (FCA ) term should be used. FOB is the last of the three F-terms also known as a main carriage unpaid term, requiring the seller to hand over the goods to a nominated carrier free of risk and expense to the buyer. In summary, the seller’s primary duty is to deliver the goods on board, to provide a clean on board receipt, to pay the loading costs not included in the freight, and to arrange export clearance, while the buyer’s primary duty is to nominate the carrier, to contract for carriage, and to pay for the unloading costs. The documents required in terms of the contract of sale should be the commercial invoice, a customary clean receipt, and an export licence if necessary.Other documents that could be considered for stipulation in the contract of sale could be any documents needed for the transit of the goods through any country or for import clearance. The three critical points of FOB are firstly, that the buyer must arrange the carriage. Secondly, that the risk transfers from the seller to the buyer when the goods pass the ship’s rail, and thirdly, that the cost transfers from the seller to the buyer when the goods pass the ship’s rail. Next week’s column will define the fifth Incoterm – Cost and Freight (CFR).