As an exporter and importer, it is important to be familiar with the term Incoterms. One of the terms is free on board (FOB). Then, what is FOB and its updates in 2020?.
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What is FOB?
Basically, FOB is a term between the seller (exporter) and the buyer (importer) to ship goods via sea. At FOB, to know the pricing, you have to calculate the value of the goods plus all costs until the goods arrive on board
The costs borne by the seller (exporter) include the cost of export duties or tax, transportation costs from the warehouse to the port, loading costs from the port to the ship, and the cost of staging the goods on the ship.
Meanwhile, the buyer (importer) pays the costs such as insurance, loading, and unloading at the destination port, and transportation costs until the goods are brought to the warehouse.
Kinds of FOB
There are two types of Free on Board, which are :
1. Free on Board Destinantion
In this system, the exporter’s responsibility also includes all the risks for the goods. Then, the exporter’s responsibility ends once it comes into the hands of the buyer or importer.
Another thing is that the process of recording the purchase of new goods is done when the goods have arrived in the hands of the buyer. Besides that, the buyer doesn’t need to know about the amount of transportation cost. The importer will only record the purchase price of the goods.
2. Free On Board Shipping Point
Unlike FOB Destination, FOB Shipping Point states that shipping cost is the responsibility of the buyer or importer. In this system, the importer’s responsibility includes all the risks of shipping until the goods reach the warehouse.
In other words, the responsibility for the goods purchased by the importer has passed to the buyer, even though the goods are still in transit.
Free on Board Updates in 2020
While there are not many significant changes in 2020, yet still some changes are applicable such as :
In 2020, the sellers or exporters are the ones who obtain permits and fees for exporting the goods. Besides that, they should bear the cost of shipping goods to the vessel at the place allocated by the buyer. Aside from those above, they also notify the buyer if the goods have been on the ship.
Furthermore, sellers also responsible for any damage to the goods prior to loading on the vessel. If there are any untoward events that occur during the delivery of the goods to the ship, they have to notify the buyer and provide sales documents.
Move to buyer responsibilities, the buyers are responsible for damage to the goods. Whether it is because of theft or broken when the loaded goods are on the ship. They are also responsible for the costs associated with the handling of the transport contract and the import.
Beyond those points above, the buyers also inform the seller of the intended port, the name of the ship, and the delivery date. They shall obtain the import permits and bear the associated costs.
Delivery of Goods
On the delivery of goods, the time is estimated when the goods are loaded onto the vessel allocated by the buyer.
Do Not Oblige to Insurance Contract
In FOB 2020, Both the seller and buyer do not have any obligation to rule the insurance contract.
You can only use the FOB 2020 term if you use sea or inland waterway transport Therefore, it is not recommended for container transport. Unlike the Incoterms 2000, where container transports could.
In order to examine the most suitable incoterms terms for your contract sales, both importer and exporter must have good communication to avoid misunderstanding. If you do not have any trusted information about that matters, you can contact us to help you. You can also Sign Up to our platform directly to get easy access of import-export platform.