incoterms
FOB Incoterms
What Free on Board Means, buyer’s and supplier’s responsibility
After EXW, the second most commonly used incoterm FOB — Free on Board. Under FOB, the seller is responsible for loading the goods on the vessel at the named port of shipment. And the responsibility for export customs clearance falls on the seller.
The seller must ensure that the goods are loaded onto the vessel at the specified port. This includes arranging the loading and covering the costs associated with export custom clearance, export duties, taxes, and other export-related documentation.
Once the goods have been loaded on board, risk transfers to the buyer, who bears all costs thereafter.
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Be careful though, If your order size is less than a full container load (LCL), it will need to be combined with other cargo at the port, which typically requires an additional fee. You need to clarify beforehand with your supplier who will be handling this fee, because some suppliers may not include this cost when offering free onboard shipping.
Seller’s Responsibilities:
- Export Packaging: The seller must ensure proper packaging to safely ship the goods.
- Loading Charges: Expenses incurred during the loading process at the seller’s warehouse are on the seller.
- Delivery to Port: The seller covers trucking fees to transport the cargo from their warehouse to the port of loading.
- Export Duty, Taxes & Customs Clearance: It’s the seller’s responsibility to ensure correct export procedures, including customs clearance, export duties, and taxes.
- Origin Terminal Handling Charges: The seller handles these charges.
- Loading on Carriage: Costs associated with loading the cargo onto the carriage are borne by the seller.
Buyer’s Responsibilities:
- Freight Charges: The buyer is responsible for carriage charges from the port of loading to the destination.
- Insurance: While not mandatory, the buyer can choose to purchase insurance for the shipment.
- Destination Terminal Handling Charges: The buyer covers these charges.
- Delivery to Destination: After unloading from the carriage, the buyer takes care of the final carrier fee to deliver the goods to their destination.
- Unloading at Destination: Any expenses during unloading at the buyer’s warehouse are the buyer’s responsibility.
- Import Duty, Taxes & Customs Clearance: The buyer must handle all customs-related taxes and fees, including potential penalties or delays.
Advantages for the Buyer:
- Control: The buyer has control over logistics and shipping costs, including the choice of a freight forwarder.
- Cost-Effective: FOB allows the buyer to seek the best shipping rates, saving money.
Disadvantages for the Buyer:
- For new importers, it may seem complicated initially, but the cost savings and control outweigh the learning curve.
- New importers can work with third-party logistics companies for guidance.
When to Use FOB:
FOB is suitable for bulk cargo shipped by sea or inland waterways. If not shipping by sea, consider other Incoterms like FCA for all modes of transport.
Shipping Under FOB in China:
- Requesting Quotations: Chinese suppliers typically offer FOB quotations. Ensure the Incoterm and the shipping point match your requirements.
- Requesting a Shipping Quotation: When requesting a shipping quotation, provide key information like pickup and drop-off service, cargo type, dimensions, and weight.
- Confirming the Shipment: Once satisfied with the quotation, inform your logistics company to handle the shipment. They’ll arrange documentation and reserve a spot on the ship.
- Shipping Day: On the scheduled day, the cargo is collected, and depending on the load (FCL or LCL), it’s loaded into the container or consolidated with other consignments.
In summary, FOB simplifies the responsibilities of buyers and sellers in international shipping. It provides control and cost savings for the buyer while allowing the seller to consider their job done once the cargo leaves their factory. Understanding the basics of FOB is key to successful international trade.
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