FOB (Free on Board)
FOB (Free on Board): One of the most popular International Sales Contracts is the FOB form. The seller has responsibility for bringing the goods to the named port and loading them over the ship’s rail. They then become the buyer’s problem.
Freight and insurance, being concerned with matters after loading, are the responsibility of the buyer. The buyer is under a duty to name an effective ship. He should also name a port – or more properly a port should be agreed in advance.
Indeed, if the Seller is not aware of the port during the negotiation of the price it will be extremely difficult for him to calculate the cost of delivering the goods and loading them as far as the ship‘s rail. For this reason, sales on this basis will always be expressed as, for example FOB Mombassa or FOB Durban.
The nomination of the ship must be made within the time specified in the contract. If the nomination is ineffective for some reason, the buyer may renominate provided always that the contract time period has not expired. The buyer usually books the space on, or charters the vessel he has nominated.
Once the nomination has been made, it is the seller’s duty to deliver the goods over the ship’s rail. Risk will pass at the same time, and the price will become payable.
Sometimes the passing of property will be delayed; for example, if the transfer of the Bill of Lading is delayed, for it is that document which signifies the transfer of ownership. It is for the buyer to arrange his own insurance, although the seller must give the buyer sufficient information to enable him to effect the insurance. If the seller fails to give the information, the risk will remain with the seller.
Variants on the FOB (Free on Board) Contract
Variants on the FOB contract: There are often modifications to the simple FOB format, though it is important to understand that these must be agreed in advance and clearly stated in the contract, as they are not provided for within the standard Incoterms definition. In fact there may be more modified FOB contracts than simple ones. In these variants, it is quite possible for the passing of property to be delayed.
FOB (Free on Board) Stowed
FOB Stowed: The cost of stowage is on the seller, so risk and property will pass on stowage, and not when the goods are simply lifted over the ship’s rail.
FOB (Free on Board) Stowed & Trimmed
FOB Stowed & Trimmed: Applicable only to bulk cargoes – the Seller will need to arrange and pay for the cost of trimming (i.e. spreading the surface of the cargo in the hold to fill available spaces and/or to reduce the risk of cargo shifting).
FOB (Free on Board) with Services
FOB with Services: The seller may have to arrange additional features for the buyer, such as the shipping space.