Today, water freight services have become popular. In this review, we will talk about what are Incoterms rules , FOB-conditions, and will also consider the main points of the relationship between the seller and the buyer in the supply of goods. By modeling various situations, the most important features of international contracts will be revealed, as well as recommendations are given that allow beginners to avoid the most common mistakes.
What are FOB conditions?
Let's dwell on this in more detail. So, where to start considering FOB? Incoterms delivery terms are specific trading rules that streamline supply chains. They stipulate the distribution of transport costs, as well as the moment of risk transfer from seller to buyer. FOB is used only when it comes to water transportation. Internal transportation of cargo is rarely used, so it would be advisable to immediately consider the international option. For river transport within the country, this basis can also be applied.
How is FOB decrypted? Translated from English free on board means "free on board." This wording may not be very clear, so it’s worth a little linguistic analysis. The word "board" in this case means "place on the ship." “Free” means that the supplier is relieved of his obligations after the cargo enters the ship. The last moment is given increased attention also because the loading service is not cheap. On average, it is approximately $ 400. Thus, if the supplier indicates the FOB price in the contract, he must load the goods at his own expense. The costs of export clearance are also borne by the seller.
Delivery address
Like any other Incoterms delivery basis, FOB terms also include a specific place of carriage. For the format under discussion, this is usually a port terminal. The supplier draws up all export formalities and loads the goods on board the vessel. After that, responsibility for it passes to the buyer.
In addition to the costs of loading on board and export clearing fees, the supplier must also bear the costs of delivering the cargo to the port. For this, the buyer’s agent contacts the seller’s representative in order to agree on the loading date. An empty container ordered by the buyer is transferred for loading to the customer’s warehouse. Delivery of the container is carried out by the transport agent of the seller.
Delivery by transport
Another popular scheme is used if there are several or one suppliers of goods from different addresses. In this case, the seller carries the goods with his own transport to the consolidation warehouse / terminal. Subsequently, a container for loading is fed into it. The seller in this case also pays for the container stuffing service - loading the goods by the agent.
Costs
This item should be given special attention. FOB delivery terms also include the following cost items:
- transportation of goods to the port of export (paid by the seller);
- freight forwarding and loading (the supplier takes the costs);
- sea ​​freight (paid by the buyer);
- unloading and port forwarding at the port of import (calculated by the customer);
- delivery and forwarding to the point of customs clearance and unloading (paid by the customer).
The above is a classic cost-sharing scheme. However, there are several ports in the world where FOB conditions stipulate that loading on board is paid by the buyer. All terminals in the United States work in this way.
In the next edition of Incoterms, these conditions may be displayed separately, however, at present it is better to check with the shipping agent at whose expense the loading is carried out.
Now that you have familiarized yourself with the main features of the FOB terms of delivery, you should consider the mechanism of interaction with partners. The main responsibility of the buyer is to timely pay for the goods. The main responsibility of the seller is to provide the goods to the customer and attach all the accompanying documents.
Decor
What you need to know about this? The terms of the FOB contract provide for the preparation of a number of permits and licenses. If you are a buyer of goods, then all costs associated with the clearance of goods in the country of import and transit are borne by you. If you are a seller, then you must ensure at your own expense the export clearance stipulated by the delivery time. Other formalities necessary for the export of goods are also assigned to the seller. If a third party or a third-party organization is engaged in registration, then relations with it should not affect the fulfillment of obligations to the buyer.
Conclusion of contracts for transportation and insurance
So how does this procedure work? The agreement on the terms of FOB involves the removal of liability from the supplier for the goods, after delivery of the cargo on board the vessel. Therefore, the customer will need to pay for further transportation services. At the same time, there are no obligations to choose an agent or shipping line to the seller. Also, no one can oblige to carry out additional cargo insurance. During customs clearance in the country of import, it will be necessary to provide a document stating the cost of transportation to the border. Usually, a reference account from a shipping agent is sufficient. When unloading in the customs territory of the Russian Federation under FOB conditions, it will only be sufficient to provide confirmation of payment of the freight. Such manipulations as unloading and port forwarding have nothing to do with the customs value of the goods and do not affect the calculation of payments.
The seller is also not obliged to insure the goods, and can choose a shipping agent at his discretion. As a rule, suppliers use the services of the same agents for whom the customer arranges transportation. This scheme is acceptable if the amount of payments and remuneration of agents is acceptable to all participants in the transaction. Otherwise, you can use the services of any other transport company.
Delivery of goods and acceptance of delivery
What is the peculiarity of this process? Under FOB and CIF conditions, it is fixed that the buyer must accept delivery. The process itself is nominal and represents a simple exchange of documents between the agents of the seller and the buyer. The supplier is obliged to deliver the goods on board the vessel at the appointed time and transfer it to the carrier, with which a contract is concluded with the buyer. In this situation, a shipping line, a logistics company or a shipping agent can act as a carrier, which buys from the line and resells delivery services to its customers, in our case, the buyer. The assumption that towing a container through a shipping line will cost significantly less than through an agent is often erroneous. The fact is that shipping companies usually provide agents with decent discounts. For individual container shipping customers, such conditions are rarely offered. In addition, it is also worth considering that shipping companies do not provide port services and further freight forwarding. Working with an agent, you can immediately order all the procedures related to delivery, from the delivery of the container on board to the final destination.
Bill of lading
Let's look at what it is and why it is needed. To collect the goods at the port of destination, the buyer will need a document such as a bill of lading. The data to be indicated on this paper must be agreed with the buyer. Separately, this should be stipulated in an international treaty. Typically, an agent issues a bill of lading and transfers it to the seller after paying all shipping and handling costs. After that, the supplier forwards the bills of lading to the customer. If the procedure is delayed, the buyer together with the seller can order the implementation of the telex release. This will save on courier costs and will turn out much faster.
Risk sharing
This issue should be considered in the first place. How do CIF and FOB terms of delivery distribute risks? Until the goods are transferred on board the vessel, the responsibility lies with the seller. Then she goes to the buyer. If during the loading of the container with the goods something happens in the port, the ship has the right not to take it on board. In this case, the seller will be responsible for the marriage. If the damage occurred at a time when the goods were already on board, the responsibility to the buyer lies with the agent.
Notices
If you are a customer, the agent representing you must promptly notify the seller of the completion of the shipment by a ship. This will allow the supplier to prepare the goods and perform their export clearance. The seller, in turn, is obliged to notify the buyer that the goods have been transferred to the company indicated in the contract. The supplier can notify the customer in any form convenient for him, unless otherwise specified in the contract.
Conclusion
In this review, we examined in detail what the FOB conditions are, their features and characteristics. They are used only when it comes to the transport of goods by water, and strictly stipulate the process of transfer of goods. Obligations are withdrawn from the seller after the goods arrive on board the vessel. At the same time, all expenses on export cleaning are imposed on him. Also, the seller bears all costs associated with the delivery of goods to the port. The buyer is responsible for all the costs of processing the goods in the country of import.