FOB (free on board)

FOB (free on board)

(… named port of shipment)

“Free on Board” means that the seller delivers when the goods pass the ship’s rail 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. The FOB term requires the seller to clear the goods for export. This term can be used only for sea or inland waterway transport. If the parties do not intend to deliver the goods across the ship’s rail, the FCA term should be used.

FOB (free on board). The seller delivers the goods on board the vessel free of cost to the buyer at a port of shipment named in the sales contract. The contract of sale will specify the place of delivery as, for example, “FOB Tokyo”. FOB contracts are closely connected with bills of lading. There may be a variety of FOB terms. For example, the “classic FOB” contract was originally discussed in Wimble v. Rosenberg, 1913, and extensions were described in Pyrene v. Scindia Navigation, 1954. In the classic type the buyer nominates the vessel, the seller places the goods on board and obtains bills of lading in terms usual in the trade. In the classic type of FOB contract the seller is the shipper. The seller is a party to the contract of carriage until the bills of lading are made out in the buyer’s name. This type will be used where the vessel will be specialised, e.g., a tanker for oil, or where political pressures cause the buyer to use vessels flagged in the buyer’s country.

Another type is were the seller makes the necessary arrangements for carriage, takes the bills of lading in his own name and transfers these to the buyer against payment. This is a common variety.

A third type of FOB contract comes into existence when the buyer engages his own freight forwarding agent at the port of loading to book the space and obtain the bills of lading. This method may be used where freight has to be paid in advance. In this situation, the seller merely places the goods on board, obtains a mate’s receipt and delivers this to the forwarding agent to enable the latter to obtain a bill of lading.

In Pytene v. Scindia, the shipper was the buyer, who made the contract of carriage. The buyer was not the charterer of the vessel. The cargo was dropped and damaged during loading because of defective cargo lifting equipment. The goods had not passed the ship’s rail. Therefore they were not “placed on board the vessel”. The seller was still the owner of the cargo. However, because the buyer had made the contract of carriage with the shipowner, the seller could not bring an action against the shipowner for a breach of contract. Therefore, the seller brought an action for the tort of negligence. The shipowner wished to use a clause in the contract of carriage limiting his liability according to the Hague Rules. The judge in the case decided that the Hague Rules applied to “loading” and this operation covered the activity from the time the cargo was placed on the vessel’s “tackle”, or cargo hook, for lifting. Therefore, because the cargo was attached to the vessel’s cargo tackle, it was on board. He held also that the seller was party to an implied contract with the carrier. Therefore the seller was bound by the limitation of liability provision in the contract of carriage.

The definition of “on board” led to FOB and “delivery on board” being considered to relate to the moment the cargo is placed on the ship’s cargo lifting devices. If the cargo is being lifted by shore cargo-handling equipment, FOB may relate to the moment it actually crosses the ship’s rail. For oil or other liquid cargoes coming on board by pipeline, the delivery occurs when the cargo passes the ship’s loading valve manifold.

This INCOTERM can be classified in a group where the main carriage is unpaid by the seller. It is particularly suitable for transport by sea and inland waterway.


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Written by Ship Inspection

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