According to the International Chamber of Commerce (ICC) recently released revisions to the standard trade definitions known as Incoterms, F.O.B means Free on Board. In 2010, the ICC altered the definition to state the seller must load the goods on board the vessel nominated by the buyer. The cost and risk are divided when the goods are actually on board of the vessel (this rule is new!). The seller is responsible for the goods to be cleared for export. The term is applicable for maritime and inland waterway transport only but NOT for multimodal sea transport in containers. The buyer must instruct the seller the details of the vessel and the port where the goods are to be loaded, and there is no reference to, or provision for, the use of a carrier or forwarder. Free on Board is a term has been greatly misused over the last three decades ever since Incoterms 1980 explained that FCA should be used for container shipments.
When developing any business agreement, the buyer should seek to specify in the contract of sale what specific costs will be borne by the seller and what costs by the buyer to avoid a dispute in the future. According to the new rules established by the ICC, where the buyer has given an indication as to the loading point but later wants to change these instructions, the seller is not obliged to cover the expenses of transferring the goods to a new loading point, provided the seller has acted in line with the buyer´s first instructions and the buyer´s new notice has arrived too late for seller to comply with it without extra cost. It is essential in the contract to make it clear when ownership passes from the seller to the buyer.
Below are four different ways in which F.O.B. domestic terms and the international equivalent are used in a purchasing agreement.
Each situation differs depending on place, parties, industry, applicable laws and relevant customs and usages, so general guidance cannot be expected to determine an outcome in a dispute. Having a trusted partner by your side through the challenging navigation of international trade can relieve the headaches and provide insight for future growth.