Summery FOB

The definition of FOB

FOB stands for “Free on Board” FOB means the seller delivers when the goods pass the ship’s rail at the named port of shipment. This means that the buyer has to responsible for all costs and risks of loss or damage to the goods. The FOB term requires the seller to clear the goods for export.[i] Under FOB, the seller provides to the transportation by loading the goods on a vessel selected by the buyer at the agreed port.

FOB - obligations of the buyer

As the buyer, the costs and risks associated with the goods only become the buyer’s responsibility when the goods pass across a ship's rail.

FOB - obligations of the seller

As the seller’s duty delivering the goods to a carrier on a date within agreed period at the named port of shipment6[ii] nominated by the buyer.

The advantages of FOB

• For the buyer

1. The buyer can control the shipping costs and determine the routing and mode of transport at a known price and the port of shipment.
2. FOB shipping term supports the buyer for foreign country restriction.
3. FOB price is not all-inclusive, the buyers are able to limit or reduce their liabilities.
4. Nominate the suitable vessel.[iii]

 The disadvantages of FOB

• For the buyer

1. The liability for damage or loss of the goods lies within the buyer after the goods are on board the vessel means that the buyers have full responsibilities and obligations of the goods afterward.
2. For the seller

1.      The seller disengages to control over the goods once the goods are loaded on board which may be an issue if problems occur once the goods are out of the country.

            Obviously, there are some advantages and therefore the implications need to be considered before the agreement is made. Nevertheless, without a clear understanding of the rights and responsibilities in each term of contract or selecting an inappropriate form of contract could lead to the problems consequently.

Referances

[i]Preambles to Incoterm 2000 ‘FOB preamble’(PDF) International Chamber of Commerce Preambles,  http://www.iccwbo.org/incoterms/preambles/pdf/FOB.pdf accessed 3 November 2010

[ii]Incoterm 2000:ICC official rules for international trade term <www.searates.com/referance/incoterms/fob> accessed 2 November 2010

[iii] Elis Terelle,’CIF or FOB this is a question? Main features for the two contract for the international sale of goods’< http://papers.ssrn.com/sol3/ciforfobthisisthequestion.pdf > accessed 3 November 2010

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[1]Preambles to Incoterm 2000 ‘FOB preamble’(PDF) International Chamber of Commerce Preambles,  http://www.iccwbo.org/incoterms/preambles/pdf/FOB.pdf accessed 3 November 2010

[1]Incoterm 2000:ICC official rules for international trade term <www.searates.com/referance/incoterms/fob> accessed 2 November 2010

[1] Elis Terelle,’CIF or FOB this is a question? Main features for the two contract for the international sale of goods’< http://papers.ssrn.com/sol3/ciforfobthisisthequestion.pdf > accessed 3 November 2010