As the Incoterms® 2010 and now 2020 rules are very much intended to apply to both international and domestic trade it is hoped that all manner of strange local rules will die out.Īn interesting provision that has been in the Incoterms® rules ever since the 1990 version has been that the seller must arrange for shipment at the buyer’s cost and risk on the “usual terms” if it is so agreed in the contract. It must be pointed out that the peculiarly North American concept of “FOB shipping point, freight prepaid”, “FOB destination” and “FOB destination, freight prepaid” have no place in international trade or domestic trade anywhere else. How do the cost and risks get split at the point while the goods are suspended above the ship’s rail? The 2010 version finally aligned the cost and risks matter with delivery, eliminating mention of the ship’s rail. Interestingly the delivery requirement was that the seller must simply deliver the goods on board but the cost split was that the seller bears all costs and risks until the goods have passed over the ship’s rail which for decades caused confusion and lawyers’ fees. The requirement is that the buyer must contract for the vessel or space on the vessel, and the seller must load the goods onto that vessel. It was of course included in the first version of Incoterms® in 1936 and has remained identical in concept throughout the later versions. “Free on Board” has been in use since the sailing ship days. Under the Incoterms® 2020 rules FOB is inappropriate for container shipments because the cargo is given to the carrier at a place some distance from the port, such as a container yard or even the seller’s premises. Often where there is a letter of credit involved the seller is shown on the bill of lading as the shipper, in which case the seller would be wise to inform themselves of the additional liabilities they might be taking on under the terms and conditions of the bill of lading. The seller will most likely require at least a mate’s receipt or some other form of evidence of export such as a copy of the bill of lading for their VAT/GST purposes. The buyer contracts for carriage therefore the shipper on the bill of lading should be the buyer not the seller. The seller must carry out all export formalities and the buyer must carry out import formalities. Cost of carriage is payable by the buyer, the bill of lading usually indicating “freight collect”. “On board” is no longer defined as placing the goods “across the ship’s rail” and in fact is not defined any further as it will be a matter for the contract to specify depending on the nature of the goods. ![]() From that point on risk of loss or damage to the goods transfers to the buyer. This trade term goes back to the days of sailing ships, and in the Incoterms® 2020 rules, as in previous versions, requires the seller to place the goods on board the vessel nominated by the buyer.
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