FOB – what does this shipping term mean?
FOB = Free On Board.
When FOB is not FOB…
This is a common shipping and sales term. Basically, the exporter (shipper/seller) delivers the goods to the shipping line or freight consolidator, and that is the end of the exporter’s responsibility.
In the case of FCL (full container load), strictly speaking, the exporter (shipper/seller) is responsible for all the preshipment cartage, port costs and export documentation.
In the case of LCL (less than container load) cargo, often the exporter will deliver to the nominated export consolidation depot, and think that is the end of their responsibility.
But what about any export documentation, export Customs Clearance and port charges?
Exporter and consignee’ expectations of services and costs can differ quite dramatically, often leaving the freight forwarder/consolidator in the middle “holding the bag”.
As part of any price and service negotiations, it is imperative that all parties know who is paying and being responsible for what.
It is very common for the sale terms to be FOB, and the exporter then thinks the buyer is responsible for the payment of the ocean freight and transit insurance.
But, that is not necessarily so.
Regardless of when or where the ocean freight is paid, this is earned by the shipping line as soon as the cargo is loaded on board the vessel.
If, for any reason, the consignee does not pay, then the ocean carrier has every right to claim this from the shipper. And not only the freight, but destination port, handling, storage and disposal/return costs.
Why might this occur?
– supply delays making the cargo worthless.
– changes in government rules and restrictions.
– containers falling overboard and not arriving at destination.
– weather delays/events.
– supposed cargo quality.
– financial standing of the purchaser.
For example, a customer of ours shipped a container of mixed foodstuffs from here to another country on FOB terms.
The consignee (purchaser) refused to take delivery of the cargo citing that one of the products was not up to specification.
There were some heated discussions between the seller and supposed buyer; and why they would not take delivery of the container is only conjecture; but the end result was that this exporter had a container of product in another country that was not going to be paid for.
The seller (exporter) had already purchased the goods here, and had arranged the shipping as per the supposed purchaser’s requirements…. but then, was stuck with a containerload of product in another country.
The shipping line then came back to the exporter demanding freight payment in accordance with their terms and conditions.
The container at destination accrued enormous storage charges as a result of the supposed consignee’ actions; and finally the goods were disposed of in the other country – all at the seller’s cost.
(For what it’s worth, the goods were all time sensitive, so they couldn’t simply be returned)
So, the seller (exporter) sold the goods on FOB terms, but was ultimately responsible for all the costs of purchase, shipping, port and storage charges at destination, and disposal charges at destination. Suffice to say he was not happy.
Sure, this and similar situations are not common, but wouldn’t you like to sleep knowing that no matter what happened, your costs were covered?
Our advice is to ensure you have insurance cover for any and all normal and extraordinary circumstances.