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Defining FOB ( free on board ) used in international trade terms (INCOTERMS) for sea transportation of goods

Defining FOB

“FOB” means Free On Board (named port of shipment), e.g. “FOB Newcastle NSW”. It is one of the most commonly used term (INCOTERMS) in sales contracts involving sea transportation of goods.

i) The seller must supply the goods and documents stated in the contract of sale. He must load the goods on board the vessel named by the buyer at the named port of shipment on the date or within the period stipulated. He must bear all costs and risks of the goods until they have passed the ship’s rail at the named port of shipment, including export charges and taxes. He must also pay for packing where necessary. Risk passes when the goods pass the ship’s rail. The seller must notify the buyer when the goods have been loaded. The seller must give sufficient information to the buyer for him to arrange insurance; if the seller fails to give enough information, the risk stays with him.

ii) The buyer must charter a ship or reserve the necessary space on a ship and notify the seller of the ship’s name, loading berth and loading dates. The buyer must bear all costs, including insurance (which he must arrange) and freight, from the time the goods cross the ship’s rail at the loading port, from when he is liable to pay the contract price. (Freight is normally collectable by the carrier from the buyer at the discharge port.) The buyer must also pay the seller for providing the required documents, e.g. bills of lading and certificate of origin.

iii) FOB is advantageous when the cargo is of a type (e.g. oil) and size that the buyer wishes to charter a particular vessel, or where foreign currency restrictions compel an importer to use FOB (e.g. where governments want importers to use national flag vessels). It is mainly used for bulk sales contracts. With respect to the bill of lading, title in the goods does not pass to the buyer until shipment. The FOB contract is based on the loading port, so the buyer is free after loading to re-sell the goods, even while they are on the vessel. The FOB invoice price is lower than the CIF price.

iv) Variants of FOB are: FOB Stowed, FOB UK Port, FOB With Services (e.g. arranging shipping space). Passing of property may be delayed with variants.




Summarized below seagoing cargo ship various employment guide:
  1. Charty party forms

    2. defines the obligations, rights and liabilities of the shipowner and charterer. Recognised standard form (e.g. GENCON, BALTIME, NYPE)
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    Nature of a time charter
    The charterers agree to hire from the shipowner a named vessel, of specified technical characteristics, for an agreed period of time, for the charterer’s purposes subject to agreed restrictions.
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  2. Voyage charter advantages

    3. contract for the carriage by a named vessel of a specified quantity of cargo between named ports or places.
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  3. Terms of Bareboat charter and lease arrangement

    4. The vessel owners put the vessel (without any crew) at the complete disposal of the charterers and pay the capital costs, but (usually) no other costs.
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  4. Seaworthiness of vessel

    5. A vessel must be fit to encounter the “ordinary perils of the sea” (e.g. bad weather) and other incidental risks to which she will be exposed on the voyage..
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  5. International trade terms (INCOTERMS) in sea transportation

    6. INCOTERMS is a set of rules, published by the International Chamber of Commerce, for the uniform interpretation of the most commonly used trade terms used in international trade contracts.
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  6. Money transfer procedure in sea transport

    7. Money transfer system commonly used in overseas trade to enable sellers to obtain early payment, i.e. soon after shipment of the goods.
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  7. Contract between cargo seller and buyer

    8. The contract of sale between the seller and the buyer of the goods is separate from the contract of carriage which one party or the other, or a third party (such as a freight forwarder), will make with the carrier .
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  8. Parties involved in sea transportation of goods

    9. Forming links in the transport chain- Sea carrier, Freight forwarder, shipper, consignee,agent & banks
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  9. Carriage of goods by sea act 1992 (COGSA 92)

    10. Section 3 of COGSA 92 lays down guidelines establishing when liabilities under a bill of lading, sea waybill or ship’s delivery order will be transferred to a party who is not an original party to the contract of carriage (i.e. an endorsee or transferee). The party who takes or demands delivery of the goods to which a bill of lading, sea waybill or ship’s delivery order relate becomes subject to the same liabilities as the original shipper..
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  10. Laytime interpretation rules

    11. Rules, which were issued jointly by BIMCO, CMI, FONASBA and INTERCARGO, replace the Charter party Laytime Definitions 1980.
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  11. CIF ( Cost, Insurance and Freight ) used in international trade terms (INCOTERMS)

    12. “CIF” means Cost, Insurance and Freight (paid to a named place), e.g. CIF London.- is a contract based on the discharge port
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  12. FOB ( free on board ) used in international trade terms (INCOTERMS)

    13. “FOB” means Free On Board (named port of shipment), e.g. “FOB Newcastle NSW”. It is one of the most commonly used term (INCOTERMS) in sales contracts involving sea transportation of goods.
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  13. Ships employment baltic exchange

    14. Baltic Exchange members undertake to abide by a strict code of business practice, enshrined in the famous Baltic motto “Our Word Our Bond”.
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  14. Ships charter market place

    15. Most ships employed in the charter markets are dry bulk carriers, tankers, combination carriers (e.g. OBOs), or reefer vessels, although there is also a charter market for container ships and for vessels of various special purpose types
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  15. Common Chartering abbreviations

    16. Many terms commonly used by shipbrokers and others involved in ship chartering, mainly to save time and effort in communications. Shipmasters may come across many of the acronyms and abbreviations in documents relating to charters, e.g. in telexed voyage orders and market reports..
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  16. Tanker freight worldscale

    17. "Worldscale" is the code name for the “New Worldwide Tanker Nominal Freight Scale”, published by the Worldscale Association (London) Limited and the Worldscale Association (NYC) Inc
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