In international trade, there are inevitable transportation problems, and there will also be some related sea delivery problems. So here is the most important link for you to understand and avoid mistakes in advance:
What is FOB
First of all, we need to know what is delivered on board at the port of shipment. FOB fee is one of the commonly used trade terms in international trade, and it is a commonly used price clause in international trade contracts. The full text of FOB is Free On Board (…named port of shipment), that is, delivery on board (designated port of shipment), which is used to be called delivery on board at the port of shipment. FOB is also called “Free On Board”. According to the FOB transaction, the buyer is responsible for sending a ship to pick up the goods.
The seller should load the goods on the ship designated by the buyer within the time limit specified in the contract, and notify the buyer in time. After loading over the ship’s rail, the risk is transferred from the seller to the buyer. The interpretation and application of FOB are obviously different from the general interpretation and application in the world, which is mainly reflected in the following two aspects: First, in terms of risk division, it is bounded by the ship’s rail at the port of shipment, that is, the seller bears the burden of loading the goods. All loss and damage up to the ship’s rail. Second, in terms of the cost burden, it is stipulated that the buyer must pay the seller’s assistance in providing export documents, export taxes, and other expenses incurred due to export.
Second, under certain conditions, the seller has to bear the risks and costs, obtain the export license or other official documents, and be responsible for the export procedures. When the transaction is made in the FOB term, the seller must also provide proof at his own expense that he has completed the delivery obligations as required If the document is not a transport document, at the buyer’s request and at the buyer’s risk and expense, the seller may assist in obtaining a bill of lading or other transport documents.
FOB Cost
Followed by domestic costs in China FOB including:
- Processing and finishing costs
- Packaging costs
- Storage costs (warehousing/renting, fire insurance, etc.)
- Domestic transportation costs (warehouse to the wharf)
- Documents Fees (including commodity inspection fees, notarization fees, consular visa fees, certificate of origin fees, license fees, storage fees, etc.
- Shipping fees (shipping, lifting fees, barge fees, etc.)
- Bank fees ( Discounted interest, handling fees, etc.)
- Estimated loss (consumption, short-term loss, leakage, damage, deterioration, etc.)
- Postal charges (telegraph, telephone, e-mail, fax, e-mail, etc.).
If you are still unclear at this time, let us take an example to help you understand more directly: a company imports a batch of goods for a FOB transaction, but when unloading the goods at the destination port, it is found that two outer packaging of the goods is broken, and the inner packaging is broken. The goods showed signs of being soaked in water. It was verified that the outer packaging was broken when the goods were loaded on the ship because the hook was not firmly hung on the deck of the ship, and the goods inside were soaked in water due to the rupture of the packaging.
Excuse me, in this case, can the importer claim against the seller on the grounds that the seller has no obligation to complete the transaction? Answer: No. Under the FOB trade method, the division of liability risk is the chord of the port of shipment. The outer packaging is broken when the goods are loaded on the ship because the hook is not firmly hung on the deck of the ship, that is to say, it is not the seller’s responsibility to cross the chord boundary. Hope such an example will help you read better.
FOB Risks
Of course, there will be some risks. Therefore, according to the “International Business Daily”, the measures proposed by the Ministry of Foreign Trade and Economic Cooperation include:
1: Try to adopt CIF or C&F to avoid foreign businessmen appointing overseas freight forwarders to arrange transportation.
2: If a foreign businessman insists on FOB terms and appoints a shipping company and a freight forwarder to arrange transportation, the designated shipping company can be accepted, but the qualifications of the freight forwarder should be reviewed, and only the government-approved cargo pattern late valve will be accepted.
3: If the foreign businessman still insists on designating an overseas freight forwarder, the exporter should entrust a freight forwarder approved by the Ministry of Foreign Trade and Economic Cooperation to issue the bill of lading, and the freight forwarder who issues the bill of lading must issue a letter of guarantee and promise. After the goods arrive at the port of destination, the goods must be released with the original bill of lading circulated by the bank under the L/C, otherwise, they will be liable for the compensation for releasing the goods without a bill of lading.
4: Foreign trade companies should not easily accept freight forwarding bills of lading, especially overseas freight forwarding bills of lading designated by foreign businessmen.
FOB Measures
There is no unified interpretation of the concept of “shipment” in different countries, who should pay for the various expenses related to loading, and the customs or practices of various countries are not completely consistent, so there are the following measures:
- FOB Liner Tenns
This variant means that the shipping cost is handled in accordance with the liner’s practice, that is, the ship or the buyer bears it. Therefore, with this variant, the seller does not bear the costs related to the shipment.
- FOB Under Tackle
It means that the seller delivers the goods to the hook of the vessel designated by the buyer at the seller’s expense, and the hoisting into the tank and other expenses shall be borne by the buyer.
- FOB Stowed
It means that the seller is responsible for loading the goods into the cabin and bears the loading costs including the handling fee. The cabin handling fee refers to the cost of placement and arrangement after the cargo is held in the cabin.
- FOB Trimmed
It means that the seller is responsible for loading the goods into the cabin and bears the loading costs including trimming fees. Trimming charges refer to the cost of leveling the bulk cargo loaded into the hold.
As this is an international business transaction, greater care must be taken to protect yourself, your funds, your company or private information, double-check and clarify contracts, secure payment methods and double-check payment details.
