The meaning of the term FOB trade

FOB (Free On Board), that is, delivery on ship in port of shipment, is also referred to as offshore price. Under the FOB trade terms, the seller (sender) is responsible for delivering the goods to the port of shipment specified in the contract and completing the export declaration procedures. The buyer (customer) is responsible for contacting the ship and bearing shipping charges and sea risks. FOB features include the following:

1. Delivery points, risk splitting points and cost splitting points:Once the goods are loaded onto the ship, the risk is transferred from the seller to the buyer.
2. Link to ship:Since the seller is responsible for transporting the goods to the ship, the buyer is responsible for contacting the ship, so the connection of the ship is very important.
3. Controversial costs of shipment:The FOB price does not include freight charges, and there may be controversy. Therefore, FOB derived many deformation terms, such as FOB line conditions, FOB hanging wheel delivery, FOB including cabin, FOB including flat cabin.

Disadvantages and risks of FOB trade terms

1. Transfer of transport and insurance rights:Under the FOB clause, the right to transport and insurance is handed over to the buyer, increasing the risk of the exporter.
2. Difficulty with designation:Foreign buyer specified goods, may be in conjunction with the buyer difficult exporters, even under the conditions of the credit certificate, it is difficult to guarantee a safe settlement.
3. No risk of shipment:Under the terms of the FOB, the buyer designates the carrier, and there may be no single shipment, which leads to an empty amount of goods from the exporter.
4. Excess charges are:The designation of goods may increase the burden on exporters by increasing various charges.

How exporters deal with the risks under the FOB trade terms

1. Delivery time to port:The contract clearly stipulates the time for the buyer to send the ship to the port of loading, so that the ship is not delayed or affects the loading time.
2. Increase the percentage:Increase the deposit ratio, reduce the likelihood of customer regrets, and reduce the risk.
3. Agreement of company:The contract stipulates a good cargo company, chooses a well-known ship company and insists on using the ships order, avoiding the risk of designating foreign cargo.
4. Delivery of cabin:In the contract clearly by the sender to entrust the goods to order the cabin, master the control of the goods.
5. Proof of Proof:Use the receivers instructions to demonstrate behavior to prevent the risk of non-shipment.
6. Export Credit Insurance:Use export credit insurance to transfer exchange rate risk to avoid huge losses.

Expenses to be borne by the sender under FOB

1. Regular costs are covered:Includes pickup charges, cargo charges, port supplementary charges, port security charges, take-off charges, entry charges, terminal operating charges (THC) or origin supplementary charges (ORC), lead seal fees, customs clearance fees and so on.
2. Costs of unexpected situations:
   • Shipping is incorrect:The resulting vacancy cabin fees, default fees, etc. are borne by the sender.
   • No shipment at the port:The shipping charges caused by unmanned shipment, shutdown charges, shutdown charges, etc. may be transferred back to the sender.
   • High designated agent expenses:The specified freight fee is higher than the ordinary freight fee, and the difference is borne by the sender.
   • Compensation for damage:Damage caused by special circumstances before packaging or shipment shall be borne by the sender.
   • No loss of goods:The goods are not returned to the original order, which leads to losses to the sender.
   • Soft credit card terms:Soft terms in the credit card may result in incompatibility of documents and refusal of payment, resulting in damage to the shipment.

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Although the term FOB is widely used in foreign trade, its potential risks require high importance from exporters. Exporters should carefully evaluate the buyers credit qualification, reasonably arrange the deposit ratio, carefully select the goods company, clarify the terms of the contract, and if necessary insure export credit insurance to minimize risk and ensure the trade goes smoothly.