FREE ON BOARD (FOB) PART II – The Seller's Obligations 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 or damage to the goods from that point. The FOB term requires the seller to clear the goods for export.” This term requires the seller to clear the goods for export. Should the contracting parties not intend to deliver the goods across the ship’s rail, then the Free Carrier (FCA) should be used. Free on Board is the last of the three F-terms also known as the main carriage unpaid terms, the other being Free Carrier (FCA), and Free Alongside Ship (FAS). It is important to remember that this term can be used only for sea or inland waterway transport. Professor Jan Ramsberg, the chairman of the ICC Working Party on Trade Terms, identified ten obligations that the seller might need to fulfil in terms of Free on Board: (1) the provision of goods in conformity with the contract; (2) licences, authorisations, and formalities; (3) contracts of carriage and insurance; (4) delivery; (5) transfer of risks; (6) division of costs; (7) notice to the buyer; (8) proof of delivery, transport documents or equivalent electronic message; (9) checking, packaging, marking; and (10) other obligations. The provision of goods in conformity with the contract implies that the documents stipulated in the contract of sale and any other evidence of conformity which may be required must be provided. In respect of the licences, authorisations and formalities the seller must, at his own risk and expense, obtain any export licence or other official authorisation and, where applicable, carry out all customs formalities necessary for the export of the goods. The seller has no obligation in respect of the contracts of carriage and insurance. In respect of the delivery of the goods, the seller must deliver the goods on that date or within the agreed period at the named port of shipment, and in a manner customary at the port on board the vessel nominated by the buyer. As for the transfer of risks, the seller bears all risks of the loss or damage to the goods until such time as they have passed the ship’s rail at the named port of shipment. In relation to the division of costs the seller must pay all the costs relating to the goods until such time as they have passed the ship’s rail at the named port of shipment, and where applicable all stipulated costs payable upon export. The seller must give sufficient notice to the buyer that the goods have been delivered in accordance with the contract of sale. The seller must, at its own expense, provide the buyer with the proof of delivery, transport documents or equivalent electronic message. Depending on the stipulations in the contract of sale the checking, packaging, marking costs are for the seller’s account. As for other obligations, the seller must, at the buyer’s request and expense, provide any assistance with information in respect of the goods and the export requirements, and for procuring insurance. Next week’s column will focus on the buyer’s obligations under Free on Board (FOB).
