The Free on Board Incoterm, also known as FOB, is an internationally recognized term used in international trade. It is a trade term that indicates who is responsible for the cost of goods being shipped from one country to another. It is one of eleven Incoterms developed by the International Chamber of Commerce (ICC) and is the most widely used in global shipping.
What are Incoterms
Incoterms are international trade terms that define the responsibilities of buyers and sellers for the delivery of goods in international trade transactions. They specify the responsibilities and obligations of each party for costs, risks, and delivery of goods, including the transfer of title, payment of freight and insurance, and the location and timing of delivery. Incoterms are standardized by the International Chamber of Commerce (ICC) and are widely used in international trade.
The current version that is used is the Incoterms 2020. It has 7 rules that cover all the modes of transport and 4 that are specific to the transport of cargo over water. These Incoterms rules are as follows:
- EXW – Ex Works (showing the place of delivery)
- FCA – Free Carrier (showing the place of delivery)
- CPT – Carriage Paid to (showing destination)
- CIP – Carriage and Insurance Paid To (showing destination)
- DAP – Delivered at Place (showing destination); replaces Delivered Duty Unpaid or DDU.
- DPU – Delivered at Place Unloaded (showing destination); replaces Delivery at Terminal or DAT.
- DDP – Delivered Duty Paid (showing destination)
The Incoterms that are specific to water transport are the following:
- FAS – Free Alongside Ship (port of loading has to be mentioned)
- FOB – Free on Board (port of loading to be mentioned)
- CFR – Cost and Freight (show port of discharge)
- CIF – Cost Insurance and Freight (port of discharge to be shown)
What is the FOB (Free on Board) Incoterm?
In the FOB Incoterm, the seller is responsible for the cost of the goods until they are placed on board the ship at their country of origin. Once the goods are loaded onto the ship, responsibility for the goods transfers to the buyer. The buyer is responsible for all costs beyond this point, including the cost of insurance, freight, and customs clearance.
When using the FOB Incoterm, the seller must make sure the goods are packaged correctly and delivered to the port of shipment on time. The seller is also responsible for obtaining all necessary documents such as invoices, certificates of origin, and bills of lading. The seller is also responsible for ensuring that the goods are loaded onto the ship correctly and that they are of the agreed-upon quality.
The buyer is responsible for all costs associated with the goods once they are loaded onto the ship. This includes the cost of freight, insurance, and customs clearance. The buyer must also arrange for the goods to be unloaded from the ship at the destination port and delivered to the buyer’s designated destination.
The FOB Incoterm is often used for international shipping because it is simple to understand and easy to implement. It also ensures that both parties are aware of their responsibilities in the transaction. For example, the seller knows that they must deliver the goods to the port of shipment and the buyer knows that they must arrange for the goods to be unloaded from the ship at the destination port.
The FOB Incoterm is a useful tool for international trade and provides clarity to both parties involved in the transaction. It is important to note, however, that there are other Incoterms available that may be more suitable for a particular transaction. It is important to understand the differences between the various Incoterms and select the one that best suits the needs of all parties involved in the transaction.
Bottom Line
The Free on Board Incoterm is an important tool in international trade. It clearly defines the responsibilities of both the seller and the buyer in a transaction, and is easy to understand and implement. It is important, however, to be aware of the other Incoterms available and to choose the one that best suits the needs of all parties involved in the transaction.
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Tags: Incoterms, International
