1. All costs are included until the goods are delivered to the port of departure specified by the buyer. Also known as Collect Freight, Freight Collect or Freight Forward. Price invoiced or indicated by a seller as a condition of sale. 2. Followed by the name of a port or city, e.g. F.O.B. San Francisco, the buyer will not be charged any fees for goods that are brought on board a carrier at the place of shipment. See also ex works. International shipments generally use “FOB” according to Incoterms standards, always for “Free On Board”. Domestic shipments to the U.S.
or Canada often use a different meaning that is specific to North America and does not comply with Incoterms standards. The indication “FOB port” means that the seller pays for the transport of the goods to the port of shipment plus the loading costs. The buyer bears the costs of sea freight transport, insurance, unloading and transport from the port of arrival to the final destination. The transfer of risk takes place when the goods are loaded on board at the port of embarkation. For example, “FOB Vancouver” indicates that the seller will pay for the transportation of the goods to the Port of Vancouver and the cost of loading the goods onto the cargo (this includes ground transportation, customs clearance, fees for original documents, demurrage charges, if applicable, customs clearance fees from the port of origin, in this case Vancouver). The buyer will bear all additional costs, including unloading. Responsibility for the goods lies with the seller until the goods are loaded onto board the ship. Once the cargo is on board, the buyer assumes the risk. Both terms have a specific meaning in commercial law and cannot be changed. `f.o.b destination` means the consignment at the time when the goods are withdrawn from transport to the place of destination. “FOB Origin” (sometimes referred to as “FOB Shipment” or “FOB Shipping Point”) means that the sale at the Seller`s Shipping Dock is considered complete and the buyer of the goods is therefore responsible for transportation costs and liability during transportation.
With “FOB destination”, the sale is made at the buyer`s door and the seller is responsible for transport costs and liability during transport. [6] [7] U.C.C. § 2-319(1): Unless otherwise agreed, the term “free on board” at a designated location, even if used only in conjunction with the price indicated, is a delivery period under which the free on board, often abbreviated as “F.O.B.”, applies to the sale of goods and indicates that goods purchased on board a ship are brought on board to be shipped to a specific location at no cost to the buyer for packaging. Pot, cart, etc. At that time, the title, the rights associated with that title and the risk of loss pass from the seller to the buyer. Typically, this designated location is a transportation depot. Contracts for goods to be shipped often contain a FOB clause which means “free on board”. This means that the goods are shipped free of charge to a specific location. FOB conditions are an important part of the purchase agreement.
FoB conditions describe: – FoB ship: The seller is responsible for the goods and the preparation of export documents until he is actually brought on board the ship. Although FOB has long been called “Freight On Board” in sales contract terminology, this should be avoided as it does not exactly match the meaning of the acronym as stated in the UCC. [7] In rarer cases, a buyer uses the shipping term FOB Origin or FOB Shipping Point. FOB Origin is typically used when the shipping price is negotiated separately from the price of the goods, for example when the item to be shipped is extremely large or heavy. Sometimes a buyer uses FOB Origin when all shipping needs to be done by a specific carrier, negotiating favorable prices and conditions. The use of “FOB” dates back to the days of sailboats. When the ICC first drafted its guidelines for the use of the term in 1936,[2] the ship`s rail was still relevant, as the goods were often passed by hand on the rail. In 1954, in Pyrene Co. Ltd.
v. Scindia Steam Navigation Co. Ltd.[3], Justice Devlin described the situation on a question of liability under a FOB contract as follows: For example, suppose Acme Clothing manufactures jeans and sells them to retailers like Old Navy. If Acme ships jeans worth $100,000 to Old Navy using the term FOB shipping location, Old Navy is responsible for losses in transit and would take out insurance to protect the shipment. On the other hand, if the goods are shipped FAB destination, Acme Clothing retains the risk and would insure the shipment against loss. Some sources claim that FOB stands for “Freight On Board”. This is not the case. The term “Freight On Board” is not mentioned in any version of the Incoterms and is not defined by the Uniform Commercial Code in the United States. [10] In addition, it has been established in the U.S.
judicial system that “Freight On Board” is not a recognized industry term. [11] The use of the term “cargo on board” in contracts is therefore very likely to be confusing. In the past, the FOB point determined when ownership of the goods was transferred. For example, goods in transit at the end of the year and period appear under the heading “destination FAB” (North American use) on the seller`s balance sheet, but not on the buyer`s balance sheet, as the risk and possibilities of ownership at the port of destination change for the buyer. – FoB Named Export Point: The seller is responsible for the cost of placing the goods in a designated export location. Some European buyers use this form when they actually talk about FOB ship. FOB usage in North America roughly matches Incoterms as follows: A 2018 study by Ki-Moon Han of the Korea Research Society for Customs examines the complexity of FOB contracts and explains that they are often misunderstood. According to Han, increasingly sophisticated contracts are being used to meet the needs of international traders. The author notes that there is often confusion because the parties involved in contracts misunderstand FOB Incoterms, sales contracts, transport contracts and letters of credit. Han urges companies to exercise caution and clarify the type of FOB they take so that risks and responsibilities are clear.
A related but distinct term “CAP” (“Customer Arranged Pickup”) is used to indicate that the buyer arranges for a carrier of its choice to collect the goods from the seller and that the responsibility for damages or losses lies with the buyer. The ownership of a cargo is independent of the Incoterms. In international trade, ownership of the cargo is defined by the bill of lading or consignment note. If the Ancienne Marine incurs other inventory-related costs, such as renting a warehouse, paying for utilities, and securing the warehouse, these costs are also added to the inventory. This accounting treatment is important because adding costs to the inventory means that the buyer does not immediately charge the costs and this delay in recording the costs as an expense affects the bottom line. FOB, “Free On Board”, is a term in international trade law that determines when the respective obligations, costs and risks in the delivery of the goods are transferred from the seller to the buyer in accordance with the Incoterms standard published by the International Chamber of Commerce. FOB is only used in non-containerized sea freight or inland navigation. As with all Incoterms, FOB does not define when ownership of the goods passes. In the modern era of containerization, the term “ship railings” is somewhat archaic for commercial purposes, because with a sealed shipping container, there is no way to determine when the damage occurred after the container was sealed. The standards have taken note of this. The 1990 Incoterms stipulate that if the parties do not intend to deliver the goods via the ship`s railing, the term FCA must be used.
[1] U.C.C. §2-319(3): Seller may also move the goods at its discretion in any reasonable manner prior to delivery or shipment. Unless otherwise agreed in all cases covered by sections (a) (1) or (b) of this section, the Buyer shall provide all necessary instructions for timely delivery, even if the time is F.A.S. or F.O.B. is the ship`s berth and, in an appropriate case, its name and departure date. Seller may also treat failure to provide the necessary instructions as a lack of cooperation. U.C.C. § 2-319 contains the explicit terms for F.O.B. Supported by Black`s Law Dictionary, Free 2nd ed., and The Law Dictionary.
Only the most enthusiastic lawyer could observe with satisfaction the spectacle that responsibilities moved uncomfortably when the cargo at the end of a drill rig swayed on a fictitious vertical tower protruding from the ship`s railing. Below is an excerpt from a state law dealing with F.O.B. clauses: Free On Board (FOB) is a shipping term that indicates whether seller or buyer is responsible for goods damaged or destroyed in transit.
