Understanding the Free on Board FOB Incoterm Bloom Group S A.

Seven steps you can use to improve the shipper-carrier relationship and ultimately benefit your business. Sometimes FOB is used in sales to retain commission by the outside sales representative. The phrase passing the ship’s rail is no longer in use, having been dropped from the FOB Incoterm in the 2010 revision. Only the most enthusiastic lawyer could watch with satisfaction the spectacle of liabilities shifting uneasily as the cargo sways at the end of a derrick across a notional perpendicular projecting from the ship’s rail.

4 ）The supplier will obtain the bill of lading (forwarder bill of lading or ship owner’s bill of lading) after paying the FOB local fees for quasi-fashionable goods. The buyer must pay for any pre-shipment inspections, except for inspections mandated by the relevant authorities of the exporting country. The seller must provide at his own expense the packaging that meets the transportation requirements of his arrangement (unless the goods described in the contract are shipped without packaging in accordance with relevant industry practices). The seller must deliver the goods on board at the port of shipment on the agreed date or within the time limit. This deformation means that the shipping cost is handled in accordance with the liner’s approach, that is, the ship or the buyer is responsible for it. Therefore, with this variant, the seller does not bear the costs related to the shipment.

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Under FOB conditions, the seller has to bear the risks and expenses, obtain an export license or other official documents, and be responsible for handling export procedures. Pay all local expenses incurred at the port of departure until the goods are safely on board. 3 All local fees and all additional costs incurred at the port of departure are borne by the factory or the shipper. The prepaid freight agreement says that the seller is responsible for the freight charges until the order arrives at the buyer’s destination. Then, the seller sends an invoice to the buyer for reimbursement when the items are delivered. When a product is sold “FOB shipping point,” the buyer pays the seller or supplier nothing more than the cost of transporting the product to the designated shipment point.

When the terms are FOB shipping point, the supplier relinquishes all of his responsibility for the goods at his shipping point and the buyer is obligated to cover the freight costs required for getting them to the desired location. As such, FOB shipping means that the supplier retains ownership and responsibility for the goods until they are loaded ‘on board’ a shipping vessel. Under DDP, the seller is responsible for moving the goods to the port of origin and loading them onto the vessel. The buyer is then responsible for the main carriage, import clearance, duties, taxes, and transport at the destination. For the buyer, there are potential situations where they might be responsible for covering costs before the goods are on board the vessel.

Of course, generally speaking, the commercial reputation of importers in Europe and the United States, and Canada is generally relatively good. FOB shipping is the most common logistics method for shipping to Europe, the United States, and Canada. The above three items are usually included in the FOB unit price of the product when the factory provides the FOB price quotation. Our team of experts can help you assess your options and choose the best shipping agreement for your needs so that you can make an informed decision about whether FOB is right for your business. The world of international shipping can be difficult to navigate, even for those with experience.

“FOB Destination” means that the transfer completes at the buyer’s store and the seller is responsible for all of the freight costs and liability during transport. It requires the supplier to pay for the delivery of your goods up until the named port of shipment, but not for getting the goods aboard the ship. Simply put, an incoterm is the standard contract used to define responsibility and liability for the shipment of goods.

Steps you need take if you are buying from China (II)

As you might imagine, one FOB term or the other shifts risk of loss entirely to one party or the other. Depending on how frequently the buyer or seller maintains the title of goods throughout the shipping process, several important costs must be considered and covered. FOB destination point refers to a product sold to a customer after it arrives at the buyer’s destination.

Issue false bills of lading, charter unseaworthy ships, or forge quality certificates and certificates of origin. This means that the seller is responsible for loading the cargo into the cabin and bears the shipping costs including trimming fees. The trimming fee refers to the cost of leveling the bulk cargo loaded into the cabin. In the FOB contract for export business, some importers colluded with the designated freight forwarder, and the designated forwarder released the bill of lading without the permission of the consignor, causing the exporting company to lose the payment. Additionally, FOB terms can help streamline operations by eliminating unnecessary paperwork and processes related to international shipments.

Who is responsible for the freight cost when the terms are FOB Shipping point?

Under the Incoterms 2010 standard published by the International Chamber of Commerce, FOB is only used in sea freight and stands for “Free On Board”. Once the delivery is unloaded in the receiving country, responsibility is transferred to you. An FOB shipping point agreement is signed and the container is handed off to the freight carrier at the shipping point. With FOB destination, ownership of goods is transferred to the buyer at the buyer’s loading dock.

• In the case of COVID-19, because of the high sea freight, many scammers and freight forwarders use this method to deceive overseas buyers.
• Once the goods are placed on board, any damage or loss incurred during transit is no longer the exporter’s responsibility.
• While shipping costs are determined by when the buyer takes ownership of a particular order of goods, a company’s accounting system is also impacted.
• Our team of experts can help you assess your options and choose the best shipping agreement for your needs so that you can make an informed decision about whether FOB is right for your business.
• The amount and type of documentation vary depending on whether the shipment is within the United States or to another country.
• Instead, if there is an insurable interest on board, the insurance costs are usually covered in the terms of sale.

When a seller quotes a FOB shipping term, they will usually include either the port of origin or the port of destination in the title to show if they are quoting for FOB Shipping Point or FOB Destination. The risk transfer occurs at a different point when fob port meaning the goods are actually loaded onto the shipping vessel. Freight collect means the person receiving the shipment is responsible for all freight charges. They also assume all risks and are responsible for filing claims in the case of loss or damage.

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Below we have included a list of the route timelines and estimated rates to ship standard containers via FOB from China. We recommend buyers consider FOB Incoterms when they wish to use a China Freight Forwarder to organize their shipments. We suggest this because FOB will offer low unit pricing for the cargo sold while also allowing the seller to take partial responsibility for the freight for as long as it remains within their country. Additionally, the buyer doesn’t have the opportunity for the delivery to be made to its final destination. Instead, the goods arrive at their destination port, and the buyer must arrange any onward carriage to the warehouse.

• The first part of the designation determines where the buyer assumes title of the goods and the risk of damage from the seller (either at the moment the carrier picks the goods up for delivery or at the time of actual delivery).
• Whether the seller or the buyer’s insurance covers loss or damage that occurs during shipping, the costs add up and impact the bottom line.
• If you are shipping less than container load (LCL), your cargo will be loaded onto the truck and taken to a warehouse to consolidate your shipment with the other consignments sharing the same container.

With the ship’s rail as the dividing line, the goods are in After crossing the ship’s rail during shipment, the risk assumed is transferred from the seller to the buyer. The following articles are very helpful for newcomers to international trade and e-commerce rookies because Incoterms has so many trade terms that it is really difficult to make a choice. The seller is responsible for paying the freight cost when the terms are FOB Destination. Given that it offers many benefits to both exporters and importers, it can be an attractive choice for companies that want to minimize risks and streamline operations. However, it’s important to consider your unique needs when deciding if FOB shipping is the right choice for your business. Free on Board (FOB) is one of the most commonly used Incoterms, and understanding it can help ensure your business is compliant with international trade regulations while also protecting your interests as a shipper.

Seller’s Obligations

The buyer must accept the transport document provided in accordance with A8, if the document complies with the contract. The “2000 General Rules” pointed out that CFR is the only standard code for the term “cost and freight” that is widely accepted worldwide, and the traditional term C&F (or C and F, C+F) should no longer be used. According to the above explanation, under the FOB contract, either the buyer or the seller meets the conditions of being a shipper.

They are also responsible for loading the cargo onto the vessel and paying the costs of shipping the freight to the buyer’s named port. The buyer then takes responsibility for the goods once they have arrived at the named port. FOB terms of sale establish which party (vendor or retailer) will be liable for the transportation costs, which party is in control of the movement of the goods, and when (date/time) the title passes to the buyer.

Depending on the agreement with your supplier, your goods may be considered delivered at any point between the port of destination and your final delivery address. Once you are satisfied with the shipping quotation, the next step is to inform your logistics company that you would like to use them to ship your products. Depending on where the cargo is traveling, they will usually send you some documentation, and ask you to sign an agreement stating that you wish for the forwarder to handle your shipment. We also recommend that newer importers work with a China third-party logistics company company to assist them in the process. Importers lacking experience in FOB shipments are encouraged to tell their logistics company so the forwarder can walk them through the process more thoroughly and fully know what to expect before starting the shipment.

Who is responsible for the freight cost when the terms are FOB Destination?

FOB Ho Chi Minh, FOB Ningbo, and FOB Bangkok usually appear in international trade and freight. These are the trade methods agreed with sellers when buyers import goods from Vietnam, China, and Thailand. The main difference between FOB and DAP (Delivered at Place) is that with FOB, the seller’s responsibility ends once they deliver goods onto a vessel, while with DAP, the seller is responsible for delivering goods to their final destination.

The seller has no legal reason to accept those goods back and the return shipment could possibly result in additional damages. Ownership of a cargo is independent of Incoterms, which relate to delivery and risk. In international trade, ownership of the cargo is defined by the contract of sale and the bill of lading or waybill.

Ideally, the seller pays the freight charges to a major port or other shipping destination and the buyer pays the transport costs from the warehouse to his store or vendors. As with all Incoterms, FOB does not define the point at which ownership of the goods is transferred. While the possession of the cargo transfers to the buyer once the freight is loaded onto a truck at the seller’s warehouse, the seller still maintains responsibility in ensuring the shipment safely clears the rails of the ship. Buyers can calculate the total costs of a FOB agreement by combining the FOB price from the seller and requesting a quotation from their freight forwarding company for the logistics.