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What are INCOTERMS 2020 ?
INCOTERMS are international trade rules that apply worldwide. They are used in international transactions to define responsibilities, costs and risks between buyer and seller. The author of Incoterms is the International Chamber of Commerce (ICC), which created the rules to facilitate smooth and efficient international trade.
What is FOB Incoterms?
Incoterms FOB i.e. free on board in practice means that the seller is responsible for delivering the goods to a port or other destination that we determine. Also, the seller is obliged to pay local costs and carry out export clearance.
The FOB rule is generally used in the case of maritime or inland waterway transport. However, it is also used in the case of air transport i rail.
In the case of rail transport, the shipper is responsible for delivering the goods to the rail terminal and carrying out export customs clearance. In the case of maritime transport it's here Similarly, the vendor must deliver the goods to the airport, pay local airport costs and clear export customs.
Customs clearance for FOB:
The seller on a FOB formula is responsible for carrying out export clearance. However, he is not responsible for any remaining customs and fomality costs when the goods will pass through other third countries.
Vendor responsibilities:
- The seller must provide the goods as well as the commercial invoice and other necessary documents.
- The seller is obliged to deliver the goods on board the ship of the buyer's choice (other types are also included) or to a point designated by the buyer. The delivery must be made on the agreed date so as to be in time for the departure of the ship, train or plane. The goods are then at the buyer's disposal.
- The seller shall bear the risk of damage to the goods until they are delivered on board a ship, aircraft or rail container.
- The seller is not obliged to take out cargo insurance, but when the buyer wishes to do so on his own he must make all the information available to him.
- The seller is obliged to cover the costs of customs clearance and all other export formalities such as export licence, export security clearance, pre-shipment inspection and any other official authorisations.
- The seller also needs to provide the buyer with all the necessary information for import clearance in the destination country.
- The costs of quality control, measurements, weighing counting are also the responsibility of the seller,
- The seller must pay all costs of packaging the goods for dispatch.
Responsibilities of the buyer:
- The buyer is obliged to pay the costs included in the sales contract
- The buyer is obliged to take over the goods from the carrier at the port of destination if everything has been carried out in accordance with the terms of the
- The buyer shall bear the risk of damage or loss of the goods until they are placed by the seller on board the ship, aircraft or rail terminal.
- If the seller has delivered the goods on the specified date in accordance with the contract, and the loading is delayed due to external factors such as delays etc. and the seller is unable to fulfil his contract, then the liability shifts to the buyer and thus any costs involved.
- The buyer must contract with a carrier for transport from the point of shipment e.g. port or terminal to the place of delivery . Transport costs for sea, air or rail freight are the responsibility of the buyer.
- The buyer is responsible for carrying out the import clearance and all other related formalities.
- the buyer must inform the seller of the port of shipment, the name of the ship and the delivery date on which the cargo is to be delivered.
Summary:
In summary, the FOB formula is the most commonly used formula for sea, rail and air transport. This is due to a simple fact, sellers in China often have a good deal on local costs on the Chinese side, so it is often better for them to take care of getting the goods to the port and all the other costs involved. We, on the other hand, as importers, can use an external company that will offer us the best freight price and in this provide us with Polish insurance. In such a situation, we will put our shipper in touch with the company from which we purchased the freight and the two companies will then agree on delivery dates and so on. This is a very convenient option. In addition, once the goods arrive at their destination, we can easily work with the company we bought the freight from to clear customs and deliver the cargo from the port to our warehouse. Then we have a comprehensive service on both the Chinese and Polish sides. The FOB formula is a very cost-effective solution.
What to choose FOB or EXW?
Here there is no clear answer, it all depends on the cost difference between EXW and formula. We compare this difference with the cost quoted by the seller for delivery to the port and export clearance etc. Then, with this data, we can decide whether it is more advantageous to ship EXW or FOB. Then, with this data, we can choose whether it is more advantageous to ship EXW or FOB.
Another thing when choosing is to trust the seller, in some cases when the seller is new and we have never worked with them it is better to choose a EXW formulathen only issues the goods through the warehouse and the rest is taken care of by the logistics company we have chosen. We will then reduce the risk of error is, for example, a late delivery to port or an incorrectly made customs clearance in China. With incorrect documents, we increase the chance of customs searches on the Chinese side, which could delay us significantly.
See also articles on other incoterms:
