What are the advantages for the seller when applying Incoterms® FOB 2020? Obviously, if the goods were delivered on board the buyer`s ship, not only did the seller physically do what he had to do, but it also appears that he has no other costs, risks of loss or damage to the goods or liabilities. Well, that`s not entirely true. The seller must continue to provide the buyer, at its expense, with proof that the goods have been delivered on board, whether a receipt, another receipt or a transport document such as a bill of lading. The Seller shall also assist the Buyer with any information or documents required by the Buyer for its import customs clearance formalities, upon request, risk and expense of the Buyer. The most common document is the certificate of origin, but in practice it is unusual for the seller to charge the buyer for the relatively low cost of it. The term „free” refers to the supplier`s obligation to deliver the goods to a specific location, which is then transferred to a freight forwarder. In other words, the supplier is „free” from any liability. „On board” simply means that the goods are on the ship. In the 1990 Incoterms®, FOB`s foreword states: „Where the ship`s rail is not used for a practical purpose, as in the case of ro-ro or container traffic, the term FCA is more appropriate. In the rules of Incoterms® 2000, FOB had a preface to a paragraph that included: „If the parties do not intend to deliver the goods via the ship`s railing, the term FCA should be used. Second, the 2010 version reinforced this concept by dividing the FAS, FOB, CFR and CIF systems into a separate section entitled „Rules for Maritime or Inland Waterway Transport” and containing an even stronger statement: „FAB may not be appropriate if the goods are handed over to the carrier before they are on board the ship, for example: Goods in containers, usually delivered to a terminal. In such situations, the FCA rule must be used. In the explanations for users of the 2020 version, the issue is now explained even more clearly: „This rule can only be used for sea or inland waterway transport if the parties intend to deliver the goods by bringing them on board a ship.
Therefore, the FOB rule is not appropriate when the goods are handed over to the carrier before being on board the ship, for example when the goods are handed over to a freight forwarder at a container terminal. If this is the case, the parties should consider using the FCA Rule instead of the FOB Rule. „Why is this obviously against the use of FOB for container shipments? Everyone does it, why don`t the rules match? The answer is that the point of delivery in the FOB Incoterms® 2020 rule is when the goods are delivered by the seller on board the ship. It is almost always impossible for the seller if the goods are packed in containers. When the seller sells goods shipped in full container (FCL), it packs the container supplied by the buyer`s carrier at its premises or delivers the goods to an entity designated by the buyer`s carrier where they are packed in the container. From there, the container can be transported to a terminal or container yard (CY) contracted by the port`s shipping company until the arrival of the ship to be loaded. If the goods are less than a container load (LCL), they are picked up by the buyer`s carrier from the seller or delivered by the seller to a container freight station (CFS) designated by the buyer`s carrier, where they are grouped with other goods in a container, which then moves as described. The seller has no direct control or knowledge of what happens to the goods once they have left the seller`s possession and are in the possession and control of the buyer`s carrier. The seller certainly cannot deliver the goods on board the vessel. According to previous versions of Incoterms, loading was usually done when goods passed through the railing of a ship. According to the current version, loading means when the goods are loaded on board the ship.
For container transport, this means when the cables loosen and no longer hold the container. The indication „FOB port” means that the seller pays for the transport of the goods to the port of shipment plus loading costs. The buyer shall bear the costs of sea freight, insurance, unloading and transport from the port of arrival to the final destination. The transfer of risk occurs when the goods are loaded on board at the port of shipment. For example, „FOB Vancouver” indicates that the seller pays for the transportation of the goods to the Port of Vancouver and the cost of loading the goods onto the cargo (this includes inland transportation, customs clearance, origin documentation fees, demurrage charges, port of origin customs clearance fees, in this case Vancouver). The buyer will bear all costs beyond that, including unloading. Responsibility for the goods rests with the seller until the goods are loaded onto the vessel. Once the cargo is on board, the buyer assumes the risk. Unless such proof is a transport document, Seller shall assist Buyer in obtaining a transport document upon request, risk and expense from Buyer. In practice, it is often the seller who agrees with the buyer that the proof is a bill of lading „on board” identifying the seller as the shipper/shipper, or that it may be a simple receipt issued by the master of the ship. The advantage for the buyer is that he has control of the goods on the ship he has arranged.
And it also has control over costs. The buyer bears the risk of loss or damage to the goods from the moment they are delivered on board and depending on the nature of the goods and their packaging, if any, it would be desirable to specify in the contract exactly what this means. For example, if bulk goods are poured into the holds, there would likely be the word „trimmed” to indicate that the load is poured evenly throughout the hold and relatively flat at the top to properly distribute the weight; For product barrels, this could be an agreement that dunnage, often scrap metal, is supplied to prevent the barrels from moving and slipping, and that they are secured to hold them in place – what role does the seller play in this? Free on Board, or FOB, is an Incoterm, which means that the seller is responsible for loading the purchased cargo onto the ship and all associated costs. Once the goods are safe on board the ship, the risk passes to the buyer, who assumes responsibility for the rest of the transport. The seller shall bear all costs until the goods have been delivered under A2, i.e. alongside the vessel for FAS and on board the vessel for FOB, with the exception of the costs which the buyer must pay in accordance with B9. The seller delivers the goods that are exported and loaded on board the vessel to the designated port. It is still believed that the railing of the ship is the determining point, that is, before the fictitious vertical line above the rail is the cost and risk of the seller and after that, the cost and risk of the buyer. One court ruled that the point of delivery was when the goods were on the bridge, but this then led to the question of whether the fictitious vertical line was replaced by a fictitious horizontal line that corresponded to the bridge itself, and what would happen if the goods were placed below deck? The shelf concept of this ship was removed in the Incoterms® 2010 version. Generally, „on board” means when the goods are safe on deck or in the hold. If the cargo is then to be further secured for transport, for example by securing or separating it with material or even distributing it in the hold for bulk goods such as grain, the seller and buyer must agree in their contract what is necessary and at whose expense and risk it is done.