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I can visualise a few raised eyebrows to the question “Will the container industry ever forget FOB“..
Especially since FOB has been and still seems to be an integral part of the container shipping industry on many fronts..
It has been an industry standard, part of the furniture, sort of a boilerplate, an established term in the industry for a very long time..
So what changed and why this question..??
Well, before I go there, let us examine the definition of FOB..
FOB (Free On Board) as one of the Incoterms rules was designed to be used only for sea or inland waterway transport..
Under this rule, the seller delivers the goods on board the vessel nominated by the buyer at the named port of load or procures the goods already so delivered..
The risk of loss of or damage to the goods passes when the goods are on board the vessel, and the buyer bears all costs from thereon..
When to use FOB
Under the above definition, FOB is suitable only for cargoes wherein the shipper is responsible for delivering/loading the goods on board the ship..
When the contract of carriage is on FIO basis, the shipper bears the cost and responsibility for the loading operations instead of the carrier so the FOB Incoterms rule would be appropriate..
When not to use FOB
FOB is not a suitable term to be used where cargo is delivered to the carrier and customer is not responsible or involved in loading the cargo on board, such as :
- bulk shipments where the contract of carriage is on FLT – Full Liner Terms basis where the carrier is responsible for the loading operations..
- containerised cargoes which are usually delivered to a container terminal where it is received under the control of the carrier..
For the above cases, the term FCA (Free Carrier) would be the appropriate Incoterms rule to be used..
FCA has been around since the 1980 version of Incoterms.. It was created to deal with the frequent cases where the reception point in maritime trade was no longer the traditional FOB-point (which up until the 2010 version was “passing of the ship’s rail”), but a point on land prior to loading on a ship, like a container stack inside the port, or for loading by other means of transport like intermodal or multimodal transport..
But even though FCA has been around for long, many trades around the world still seem to use FOB as the Incoterms rule for containerised shipments, which is incorrect..
This maybe due to the fact that the definition of FOB or Free On Board is pretty clear to understand even for a layman..
OK while this is the general definition and description of the Incoterms rule FOB, the world of shipping uses it quite often in another context..
While there is no technical or contractual connection between shipping line and Incoterms®, the term FOB has been linked to shipping business and has been widely used by shipping lines and the freight market for many years..
If you are on the shipping side of the industry you may have used/still using the term FOB business to refer to cargo and/or business that is negotiated, controlled and paid for by the consignee, importer, their agent or the freight forwarder at the destination port..
The antonym of FOB business is CIF business which is used to refer to business that is negotiated, controlled and paid for by the shipper, exporter, their agent or the freight forwarder at the origin port..
Simply put, shipping lines refer to the market controlled by the importers as FOB market and the market controlled by the exporters as CIF market and they even have special rate negotiations and discussions based on the market that they are targeting..
It is a well known gripe among the shipping lines/agents/forwarders that the freight rates they are able to get in the “FOB market” are higher than the “CIF market”, especially on cargoes coming out of China to various parts of the world, as it gives the exporters an upper hand than the importers..
In the container trade in every market around the world, there is always a struggle from the importers, forwarders, shipping lines, agents to capture more and more of the FOB business that is available in that market..
So while FOB may not be the appropriate Incoterms rule to use in the context of containerised shipments, it may still be around for a long time in the context of “freight collect” shipments and FOB business even in the container industry.. 🙂
What do you think..??