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Definition

FOB (Free on Board), also known as “FOB price” , is one of the commonly used trade terms in international trade. It means that the seller delivers the goods on board the vessel designated by the buyer at the named port of shipment or by obtaining the goods already delivered on board for delivery. Once the goods have passed the ship’s rail, the risks are transferred from the seller to the buyer.

For example, in an export transaction at Shanghai Port, in accordance with the FOB terms, after the seller loads the goods on board the ship at Shanghai Port, the risks during the transportation process (such as damage to the goods caused by a storm at sea, etc.) will be borne by the buyer.

Seller’s Obligations

Delivery Obligation: The seller must, within the date or period stipulated in the contract, deliver the goods that comply with the contract to the vessel designated by the buyer at the named port of shipment and give the buyer sufficient notice to indicate that the goods have been delivered as required. For example, if the contract stipulates that the goods should be loaded on board before October 1st, the seller must complete the loading on time and promptly inform the buyer of the loading situation.

Handling Export Formalities: The seller is responsible for handling all the customs formalities required for the export of the goods, including applying for export licenses, customs declaration, etc. For instance, in some countries, the export of specific agricultural products requires the handling of complicated inspection and quarantine as well as license formalities, and all of these are the responsibilities of the seller.

Providing Shipping Documents: The seller shall provide the buyer with the usual documents proving that the goods have been delivered as stipulated, such as commercial invoices, clean on board bills of lading, etc. A clean on board bill of lading indicates that the goods were in good apparent condition at the time of loading, which is an important basis for the buyer to take delivery of the goods and handle insurance claims during the transportation process.

Buyer’s Obligations

Chartering and Booking: The buyer is responsible for chartering the vessel or booking the shipping space and promptly notifying the seller of the name of the vessel, the loading location and the requested delivery time, etc. For example, the buyer needs to contact the shipping company to arrange a suitable vessel for shipping the goods according to the quantity of the goods, the transportation time and other requirements.

Payment of the Purchase Price: The buyer shall pay the purchase price in the manner and within the time stipulated in the contract. The payment methods can be letters of credit, collections and other methods. For example, under the letter of credit payment method, the buyer shall issue a letter of credit that meets the requirements of the contract through the bank within the specified time to ensure that the seller can receive the payment smoothly.

Bearing the Risks and Costs after the Goods Are Loaded on Board: All the risks and costs after the goods have passed the ship’s rail at the port of shipment, such as insurance premiums and freight during the transportation process, shall be borne by the buyer. If the goods are damaged or lost during the transportation process, the buyer shall claim compensation from the insurance company according to the insurance contract.