Even today, several companies use the FOB term for containers without understanding the revisions that have been made by ICC in the scope. Rather than misusing the term FOB in case of containers, companies must know which is the actual term related to them. Thus, in simple terms, it can be said that FOB comes into practice only when the seller directly loads the goods on the vessel without the use of any containers.
Global companies while entering into the contracts of buying and selling of goods can negotiate certain terms. These include quantity, price, and characteristics of the transacted goods. International contracts also contain the international commercial term or the Incoterm. There are many main as well as secondary terms which help in denoting the responsibility and risk of the carrier, shipper, and consignee from the beginning to the end of the shipment. Earlier, there were about 13 such related terms in the Incoterms but the amended Incoterm 2010has reduced it to 11. These terms are globally recognized easing the business transactions which take place cross-board.
Among all the terms framed by the International Chamber of Commerce, the FOB incoterms are the one which gets widely used. FOB indicates “freight on board” or free on board”. The term requires a deep understanding and knowledge. Misinterpretation of FOB often leads to confusion on the part of both the seller and the buyer resulting even in losses of money. So, in order to avoid such pitfalls, it is required that the parties get to know the benefits of FOB to ease out the complexities of transactions between them.
A Deeper Look At The FOB Definition:
In order to understand the scope and definition of FOB in a better way, it is important that people know the characteristics and practices of the term. In relation to international transactions, FOB Incoterms 2010 are mainly origin-based. This indicates that when the shipment is marked FOB origin, the risk and cost of the goods are transferred to the buyer from the seller at the origin point itself. As soon as the goods get loaded, it is the responsibility of the purchaser to safely transport the goods to the perfect destination country. In case of other transactions, however, FOB destination is also applicable.
Certain Confusions That Require More Clarity:
The amendments made in the 2010 version of the incoterm have divided the transportation mode of goods into two different groups. One group is exclusively reserved for the transportation via maritime while the other group comprises of all other modes of transport. FOB is related to the maritime transportation. However, sometimes it is seen that the FOB incoterms 2010 also get used in case of airways transport. It must be noted that it is technically incorrect. This mistake often gets committed as companies involved in international transactions tend to ignore the other terms of the incoterm. However, this confusing habit is not at all supported and you must know the correct significance of the Fob term.
Initially, FOB was associated with the selling of goods in bulk amounts. Decades ago, there were no containers available for shipping the goods and thus people used any ship for carrying the load. However, with time, containers came into the picture and now loads are carried in them for transportation. Even today, several companies use the FOB term for containers without understanding the revisions that have been made by ICC in the scope. It is crucial that companies go through the amendments made at an interval of ten years in the terms related to international transactions. This would facilitate better logistics management and control in the long run.
Knowing The Appropriate Incoterm For The Use Of Containers:
Rather than misusing the term FOB in case of containers, companies must know which is the actual term related to them. Containers fall in the other part of the modes of transportation which are non-maritime. Whereas, as stated earlier in the discussion, FOB is exclusive related to the maritime transport. Thus, for containers, the term FCA meaning free-carrier is more applicable. The correct use of the terms lowers the costs borne by the parties and also minimizes risk factors. So, it is important that you remain updated with the terms and use them properly to enjoy the benefits.
For collecting in-depth knowledge on the FOB term, there are so many articles and guidance available online which you can easily refer to. Attending of seminars on such topics can also simply the understanding. Thus, in simple terms, it can be said that FOB comes into practice only when the seller directly loads the goods on the vessel without the use of any containers. This simple logic can help in eliminating so many confusions and risks associated with cross-border trade.
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