FREE ON BOARD (FOB) PART III – The Buyer'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 ”. 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 buyer might need to fulfil in terms of Free on Board: (1) the payment of the price; (2) licences, authorisations, and formalities; (3) contracts of carriage and insurance; (4) delivery of the goods; (5) transfer of risks; (6) division of costs; (7) notice to the seller; (8) proof of delivery, transport documents or equivalent electronic message; (9) inspection of goods; and (10) other obligations. The payment of the price implies that the buyer must pay the price in accordance with the contract of sale. In respect of the licences, authorisations and formalities the buyer must, at his own risk and expense, obtain any import licence or other official authorisation and, where applicable, carry out all customs formalities necessary for the import of the goods. This includes, where necessary, for their transit through any country. The buyer must, at his own expense, contract for the carriage of the goods from the named port of shipment, but has no obligation in respect of the contract of insurance. The buyer must take delivery of the goods when they have been delivered in accordance with the contract of sale. As for the transfer of risks, the buyer must bear all risks of damage to the goods from the time that they have passed the ship’s rail at the named port of shipment and in instances where delivery did not take place in accordance with the stipulations of the contract of sale. In relation to the division of costs, the buyer must pay all costs relating to the goods from the time that they have passed the ship’s rail at the named port of shipment, as well as any additional costs incurred if the stipulations of the contract of sale are not adhered to. Where applicable, duties and charges in respect of the import of the goods and their transit through any country must also be paid. The buyer must give sufficient notice to the seller of the vessel name, loading point and required delivery time. In respect of the proof of delivery, transport documents or equivalent electronic message the buyer must accept the proof of delivery in terms of the contract of sale. In terms of the inspection of goods the buyer must pay the costs of any pre-shipment inspection, except where such inspection is mandated by the authorities in the country of export. As for other obligations, the buyer must pay all costs and charges incurred in obtaining the documents as per the contract of sale and only reimburse the seller in respect of the cost of assistance rendered. Next week’s column will provide a summary of the Free on Board (FOB) term.
