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Under the Incoterm standard published by the International Chamber of Commerce,
FOB stands for "Free On Board", and is always used in conjunction with a
port of loading. Indication of "FOB port" means that the seller pays for
transportation of the goods to the port of shipment, plus loading costs.
The buyer pays cost of ocean freight transport, insurance, unloading, and
transportation from the landing port to the final destination. The passing
of risks occurs when the goods pass the ship's rail at the port of shipment.
For example, "FOB Tianjin China" indicates that the seller will pay for
transportation of the goods from their factory or warehouse to the port
of Tianjin, and the cost of loading the goods on to the cargo ship. The
buyer pays for all costs beyond that point including unloading. Responsibility
for the goods is with the seller until the goods pass the vessel's rail.
Once loaded on to the ship or vessel, the buyer assumes risk. Due to potential
confusion with domestic North American usage of "FOB", it is recommended
that the use of Incoterms be explicitly specified, along with the edition
of the standards set forth in the
International
Chamber of Commerce's website, e.g., "FOB New York (Incoterms 2000)".
Incoterms apply primarily to international trade, not domestic trade within
a given country. This use of "FOB" originated in the days of sailing ships.
When the ICC first wrote their guidelines for use of the term in 1936, the
ship's rail was often still relevant, as goods were often passed over the
rail by hand. In the modern era of containerization, the term "ship's rail"
is somewhat archaic for trade purposes. The standards have noted this. Incoterms
1990 stated, "When the ship's rail serves no practical purpose, such as
in the case of roll-on/roll-off or container traffic, the FCA term is more
appropriate." Incoterms 2000 adopted the wording, "If the parties
do not intend to deliver the goods across the ship's rail, the FCA term
should be used."
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