Some things you may not know about FOB in Incoterms 2020

Posted date: 03/06/2023

I. WHAT ARE FOB CONDITIONS?

FOB (abbreviation for the phrase FREE ON BOARD) - delivered on board (include the specified port of loading) Incoterms^® 2020 is a term in the International commercial law that specifies the obligations and expenses corresponding risk charges associated with the transfer of goods from seller to buyer in accordance with Incoterms standards published by the International Chamber of Commerce (ICC).

“Free On Board” means that the seller delivers the goods to the buyer when he places the goods on board the vessel nominated by the buyer at the named port of loading or purchases the goods so delivered.

FOB is only used for sea or inland waterway transport when delivering goods by placing the goods on board the vessel. If the delivery of the goods is to the carrier before the goods are on board the vessel, for example, when the goods are delivered to the carrier at the point of consolidation, FOB is not appropriate but FCA should be used.

How to express FOB on foreign trade contracts: FOB [specified port of shipment] Incoterms 2020

Example: FOB Da Nang Incoterms 2020

II. USER MANUAL

1. Regarding mode of transport: This condition is applicable for sea and inland waterway transport when the parties deliver the goods by placing them on board the nominated vessel.

2. Transfer of Goods and Risks (FOB - Free On Board): The time of delivery of the goods and the transfer of risk to the buyer is when the seller places the goods on board the vessel nominated by the buyer at the named port of loading.

The seller must either deliver the goods on board or procure the goods so delivered. The term "buyback" here applies to multiple sales during transit (chain sales), which is common in raw material purchases.

3. Import/Export Clearance Obligations: The FOB term requires the seller to clear the goods for export, if necessary. However, the seller is not obligated to clear the goods for import or to clear them in transit in a third country through which the goods must pass, nor to pay import duties or the costs of carrying out import clearance.

III. OBLIGATIONS OF BUYER AND SELLER IN FOB CONDITIONS

1. Seller's obligations:

A1. General obligations of the seller

The seller is responsible for providing the goods and a commercial invoice in accordance with the contract, as well as any other relevant evidence that may be referred to in the contract.

Any document provided by the seller may be in the form of a traditional paper document or in electronic form, as agreed upon or prescribed by the governing body.

A2. Delivery

The seller must deliver the goods by placing the goods on board the vessel nominated by the buyer at the place of loading, if any, nominated by the buyer at the named port of shipment, or by purchasing the goods so delivered. In either case, the seller must deliver the goods on the date or within the agreed period in the usual manner at the port.

If the buyer does not specify a specific place of loading, the seller may select the most suitable place at the named port of shipment. If the parties agree to deliver the goods within a specific time period, the buyer has the right to choose a delivery date within that period.

A3. Transfer of Risk

The seller bears all risks of loss of or damage to the goods until they have been delivered in accordance with A2, except in cases of loss or damage mentioned in B3.

A4. Carriage

The seller has no obligation to the buyer to conclude a contract of carriage.

However, the seller must provide the buyer if the buyer requests, at the buyer's risk and expense, to assist the buyer in obtaining any necessary information or documents, including security that the buyer needs to export or organize the transport of the goods to the destination.

The seller may agree to help the buyer or not, but if the seller agrees to help the buyer conclude a contract of carriage on terms normally appropriate for that type of goods, all risks and costs will be borne by the buyer.

A5. Insurance

The seller has no obligation to the buyer to enter into a contract of insurance. However, the seller must provide the buyer, at the buyer's request and risk, with the information the buyer needs to purchase insurance.

A6. Delivery/transportation documents

The seller must, at his own expense, provide the buyer with ordinary proof that the goods have been delivered in accordance with A2.

Unless this proof is a transport document, the seller must assist the buyer if the buyer so requests, at the buyer's risk and expense, in obtaining the transport document for the buyer.

A7. Import/Export Clearance

a) Regarding export clearance

If necessary, the seller must make and pay for all costs related to customs clearance for export as prescribed in the exporting country, such as:

• Export license;

• Security check with goods when exporting;

• Inspection of goods upon export; and

• Any legal requirements.

b) Support for import procedures

If necessary, the seller must assist the buyer, at the buyer's request, risk, and expense, to obtain the necessary documents/information for customs clearance during transit/import, including security information and cargo inspection required in the country of transit or the country of import.

A8. Inspection – Packing, packaging – Marks and numbers

The seller must pay for the costs of any inspection (such as quality control, weighing, measuring, counting) necessary to deliver the goods in accordance with A2.

The seller must pack the goods and bear the costs of doing so, unless industry practice specifies that the goods are sent unpacked. The seller must package and mark the goods in accordance with the mode of transport unless the two parties have specifically agreed on how to pack and mark the goods when the contract is signed.

A9. Expense division

Seller must pay:

a) all costs relating to the goods until they are delivered to the buyer in accordance with A2, except those payable by the buyer pursuant to B9;

b) the cost of providing evidence to the buyer under A6 that the goods have been delivered;

c) If necessary, clear customs, pay export duties and any other costs in connection with the exportation pursuant to A7(a); and

d) Pay the buyer all costs and surcharges associated with assisting the seller in obtaining documents and information required under B7(a).

A10. Notice to Buyer

The seller must provide the buyer with any necessary information to enable the buyer to receive the goods in accordance with A2. If the carrier has not received the goods at the specified time, the seller must also inform the buyer.

2. Buyer's Obligations

B1. Buyer's General Obligations

The buyer must pay for the goods as specified in the contract of sale.

Any document provided by the buyer may be in the form of a traditional paper document or in electronic form if agreed upon by the parties or by custom.

B2. Receive

The purchaser must receive the goods when the goods have been delivered in accordance with A2.

B3. Risk transfer

The buyer bears all risks of loss of or damage to the goods from the time they are delivered in accordance with A2.

If:

a) Buyer fails to notify in accordance with the provisions of section B10; or

b) The vessel nominated by the buyer under B10 fails to arrive on time for delivery under A2, or fails to take delivery or stops loading before the time notified in accordance with B10.

Provided that the goods are identified as the contract goods, the buyer bears all risks of loss of or damage to the goods from the specified date or the last day of the period specified for delivery.

B4. Carriage

The buyer contracts for carriage or arranges the carriage at his own expense for the carriage of the goods from the time of receipt, unless the contract of carriage is concluded by the buyer in accordance with A4.

B5. Insurance

The buyer has no obligation to the seller to enter into a contract of insurance.

B6. Proof of delivery

Buyer must accept proof of delivery provided in accordance with A6.

B7. Import/Export Clearance

a) Support for export clearance

If necessary, the buyer must assist the seller when requested by the seller, at the seller's risk and expense, in obtaining documents/information relating to export clearance, including security or Pre-export goods inspection is regulated by the exporting country.

b) Import clearance

If necessary, the buyer must make and pay the costs associated with customs clearance specified in the country of transit and the country of import, such as:

• The import license or any permit necessary for the crossing;

• Security checks for importation and transit;

• Check product;

• And any legal requirements.

B8. Inspection – Packing, packaging – Marks and numbers

The buyer has no obligation to the seller.

B9. Cost division

Buyer must:

a) Pay all costs incurred in connection with the goods from the time they are delivered in accordance with A2, from the costs paid by the seller in accordance with A9;

b) Refund all costs and fees incurred by the seller in assisting the buyer under A4, A5, A6 or A7(b);

c) Where applicable, pay all taxes, fees and other charges as well as customs clearance costs for transit and import in accordance with B7(b); v

d) Pay all expenses incurred for the following reasons:

(i) the buyer fails to give notice in accordance with B10; or

(ii) the vessel nominated by the buyer under B10 fails to arrive on time or fails to take delivery or stops loading before the time notified under B10.

Provided that the goods are identified as the contract goods.

B10. Notice to the seller

The buyer must inform the seller of the name of the vessel, the place of loading and, where necessary, the chosen delivery time within the agreed delivery period.

IV. ADVANTAGES AND DISADVANTAGES OF FOB

ADVANTAGES

DISADVANTAGES

- In FOB, the seller is no longer responsible for finding carriers and does not need to spend money on insurance for the goods or find a place to transfer risks early. Additionally, the seller does not need to contact multiple suppliers to support shipments.

- While FOB can bring many benefits to the seller, it still depends on the buyer to charter the vessel at the right time. This can make it difficult to pack the goods into the container, amend documents, and take initiative in pricing the market since the seller doesn't have much control over the shipment. For instance, if the freight rate and insurance costs are included, the buyer may not know the actual price of the goods.

EXW CONDITIONS IN INCOTERM 2020 - THINGS YOU MAY NOT KNOW

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