FOB – Free on Board (Named Place) Incoterms® 2020
Article 4 in our series of Incoterms® 2020 – In each article we will identify the responsibilities of the seller in the transaction at different points in the shipping journey.
What are Incoterms used for?
Incoterms® are primarily used for determining how the sale of equipment for delivery across international boundaries will be handled and who will pay for what in the transaction. They will not address the consequences of a breach of contract or exemptions of liability. Incoterms® relate to the terms between the exporter and importer.
Incoterms® cover the following broad points:
- Delivery – Incoterms® 2020 specify when seller delivers to buyer:
- Risk – Incoterms® 2020 specify when risk transfers from seller to buyer. Risk passes from seller to buyer when seller has fulfilled his obligation to deliver the goods
- Costs – Responsibility of costs passes from seller to buyer at a point up to which the seller is obliged to pay transport (and insurance) costs
Our third Incoterm® is
- FOB – Free on Board (Named Place)
FOB should only be used for sea and inland waterway transport.
Under the Incoterms® 2020 rules, FOB means the seller has fulfilled its obligation when the goods are loaded on the vessel nominated by the buyer at the named port of shipment. With FOB, the seller is responsible for loading the goods on the vessel, while the buyer is responsible for everything else necessary to get the goods to the final destination.
The risk or liability for the goods transfers from the seller to the buyer when the goods are on board the vessel, and the buyer bears costs from that point forward.
Because the seller is responsible for the goods until they are loaded on the vessel, they need to ensure the goods arrive at the vessel. Since most goods are now delivered to container yards rather than right to a vessel, and if FOB is the agreed upon term, both buyer and seller must agree upon exactly what “loaded on board” means in the sales contract, because it can vary for different types of vessels and commodities.
Seller delivers when goods placed on board the vessel nominated by the buyer at named port of shipment:
- Cleared for export by seller
- Only to be used for sea transport
- If commercial practice or at buyer’s request, seller may (but is not required to) arrange transport at buyer’s cost and risk
Incoterms® 2020 FOB rules are used only and exclusively in maritime transport or inland waterway transport. Use of FOB is not recommended for container transport.
Missed the first three articles? Catch up on them here: