Principles of Fob Delivery According to the Incoterms 2020
Aysu K . Erginvisibility
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This paper is a summary of my researches about the principles of FOB delivery according to the Incoterms 2020. I'd like to specially thank to Dr. Barış Günay for his mentorship during my summer internship.
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Principles of Fob Delivery According to the Incoterms 2020
Introduction
A contract of carriage by sea requires the goods subject to the sale to be transported by sea. The
requirement of using the seaway is the characteristic feature of this contract. Contracts of
carriage by sea can be categorized as “sale on loading” (vente à l’embarquement) and “sale on
landing” (vente au débarquement). As a result, the obligated place of delivery changes in
accordance with this categorization. The place of delivery in sale on loading is the port of
shipping while the place of delivery in sale on landing is the port of discharge.
In Fob Deliveries, the place of delivery is the port of shipping that is decided by both parties.
This is the reason why Fob delivery is one of the most frequently seen types of delivery in saleon-loading. Incoterms (International Commercial Terms) which were published first in 1936
and updated recently in 2020 by ICC, regulate the risks and obligations of buyers and sellers in
international sales of goods. These regulations contain the principles of international sales that
will be transported by sea, railroad, road, and even air. The basics of Fob Delivery, which is a
type of delivery both in international sales of goods and inland sales of goods, are also described
in Incoterms.
Features of Fob Delivery
Fob Deliveries are under commercial sales and they are seen in distance sellings. Only personal
properties can be the subject of Fob deliveries. When parties agree on using Fob Delivery, they
must put a “Fob – (Name of the port of Shipping)” clause to the contract.
Writing the “Fob – (Name of the port of Shipping)” clause to the contracts provides a division
of responsibilities on the buyer and the seller axis. In a sales contract with a Fob Delivery clause,
the transfer of benefits and damages is determined by the moment the goods pass the ship’s rail
level. The expression “ship’s rail level” stands for the deck of the vessel. The vessel in which
the delivery will be made is nominated or provided by the buyer. The characteristic principle of
a Fob Delivery is that all risks of loss and damage are on the seller until the goods pass the rail
level of the vessel and all risks of loss and damage transfer to the buyer once the delivery is
completed. When the goods are safely on deck or on hold, the responsibility and risks transfer
to the buyer and the seller officially completes the delivery.
As a rule of Fob Delivery, expenses in the port of shipping, expenses of the carriage of goods
from the factory to the port of shipping, and the risks of placing the goods safely to the deck
belong to the seller and all risks and costs from the deck of the vessel to the port of discharge
belong to the buyer. As an exception to this general form, since the vessel is nominated by the
buyer if the ship fails to arrive on time or the buyer fails to inform the seller about the place of
the vessel so that the delivery fails, the buyer bears all the costs and risks.
FOB Seller and Buyer Obligations According to the Incoterms 2020
Fob Delivery principles that are regulated in Incoterms 2020 are as described below:
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General Obligations: First of all, the obligation of the seller is to provide the goods,
their commercial invoices, and any other evidence such as analysis certificates. It is
allowed that the documents can be either in paper or electronic form. And the general
obligation of the buyer is to pay the price. When or how it is going to be paid can be
regulated in the contract.
Delivery: Seller’s obligation of delivery is completed once the goods are placed on
board. “On board” means that the goods are safely on deck or in the hold. Delivery must
be provided on the agreed date/within the agreed period. The vessel that the delivery
will be made is provided by the buyer. And the buyer’s obligation is to take the delivery.
Transfer of risk: Until the delivery is made, the seller must bear all risks of loss or
damage and after the delivery, the buyer bears all risks of loss or damage. The exception
to this general regulation is when the buyer fails to inform the seller about the place of
the nominated vessel or the vessel fails to arrive on time so that the seller cannot deliver,
the buyer bears all risks of loss and damage.
Carriage: The buyer must contract for carriage from the port, but it can be agreed that
the contract will be made by the seller at the buyer’s risk and cost. Until the delivery is
made, the seller must comply with all of the transport-related security requirements. If
it is required by the buyer, the seller must provide any information known such as the
transport-related security requirements.
Insurance: Both the seller and the buyer do not have an obligation to arrange insurance.
The buyers can either decide to have insurance or bear all risks of loss and damage
themselves. If the buyer decides to have insurance, the seller’s obligation is to provide
the buyer with all the information that is needed to arrange insurance.
Delivery/Transport Document: The seller must provide the buyer with usual proof
that the goods have been delivered and the buyer must accept the proof of delivery.
Export /Import Clearance: In a broad view, the seller is responsible for the process of
export and the buyer is responsible for the process of transit and import since the
responsibilities are divided in accordance with the moment the delivery is completed.
The seller must carry out all of the export formalities such as licenses, permits, approvals
etc. at its own risk and expense. The seller has no obligation to arrange the import and
the transit clearances but if the buyer requests, the seller is obligated to obtain any
documents that are needed in order to complete the formalities required by the country
of transit or import. The obligation of the buyer is to bear the expenses and carry out the
formalities of transit and import clearances such as licenses, permits, security
clearances, etc. If there are any documents that are needed for the formalities required
by the country of the export, the buyer must provide them to the seller.
Checking/Packaging/Marking: The buyer has no obligations about packaging and
marking, however, there can be exceptions such as when the buyer provides the seller
with labels or logos. On the other hand, the seller must pay the costs of any checking
operations such as measuring the goods, packaging etc. The seller is obligated to
package the goods unless the goods are usually sold unpackaged. Plus, the seller must
complete the packaging appropriately for the transport or for the agreed clause.
Allocation of Costs: Any costs occur until the delivery is completed must be beared by
the seller. The seller must also pay the costs of providing the proof of the completed
delivery such as bill of ladings. The seller pays any costs, export duties and taxes. If the
buyer requests any information from the seller about the export formalities, the seller
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must also pay the costs of the required documents. And the buyer bears all costs after
the delivery, other than those payable by the seller. Plus, the buyer must bear the costs
of documents if the seller requests any information or documents that affect the buyer
to complete the loading, carriage, insurance etc. Since the import is the responsibility of
the buyer, the buyer pays any duties, taxes and other costs of the import clearance. In a
fob delivery, the vessel is nominated by the buyer. So, if the buyer fails to nominate the
vessel or the vessel fails to take the goods or the cargo closes earlier than the agreed
time, the buyer must bear all additional costs deriving from this mistake.
Notices: The seller must give notice to the buyer whether the goods are successfully
delivered or the delivery has failed to be done on time. Before the delivery, the buyer
must give notice to the seller of the name of the provided vessel and the loading point
of the port. After the goods are loaded, the buyer must give notice to the seller of any
transport-related security requirements.
Aysu K. ERGİN
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