Free on Board (FOB) is the most popular term in International Business. It is named port of shipment. Free on Board (FOB) means that the seller delivers when the goods pass the ship’s rails at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that point. Incoterms 2017)
The price quoted under this contract charges up to preparation of goods for export and placing them on board the named vessel in the seller’s country. The buyer should arrange for the space in the vessel and intimate the seller so that the latter may arrange to take the goods to the port at the appropriate time and get them placed on the vessel. The right in the goods passes on to the importer the moment goods are placed on the vessel as per his instructions and hence any loss of or damage to the goods after this stage should be borne entirely by the buyer.
The buyer has to pay freight at destination and arrange for insurance covering the journey. As regards the loading charges at the port in the seller’s country, the seller has to bear to the extent they are not included in the freight.
The seller’s duty is to arrange to prepare the goods, pack them, place them on the vessel as per the terms of the contract and obtain a bill of lading evidencing shipment. He has to bear the cost of any checking operations like checking quality, measuring, etc., which may be necessary for delivering the goods. He has to obtain export license and pay export taxes and fees that may he required. If the buyer request, the seller has to provide him with a certificate of origin, the cost of which the buyer is supposed to be borne. Further, he may assist the buyer, at buyer’s risk and expense, on other matters relating to the contract.
The term FOB is normally followed by the name of a port in the seller’s country. For example, an Australian seller may quote FOB Sydney. It means the price quoted is for delivery of goods at Sydney port. If no port is mentioned in the terms, the buyer has the right to ask for shipment at any port in Australia. Therefore, he may require the seller to ship from Adelaide, which may mean additional cost to the seller.
Documents to be submitted under FOB contract are:
(a) Freight to pay or freight collect bill of lading
(b) Invoice, and
(c) Other documents as required by the buyer.