In international trade, the correct choice of Incoterm is crucial to optimize costs, reduce risks, and ensure efficient logistics. One of the most commonly used terms in maritime transport is FOB (Free On Board), which provides significant advantages to the buyer in terms of costs and control over the goods. In this article, we will explore what the FOB Incoterm is, why it is beneficial to choose it, and compare it with EXW (Ex Works) to better understand their differences.
What are Incoterms?
In 1936, the International Chamber of Commerce (ICC) created the Incoterms (International Commercial Terms), a set of standardized terms to facilitate international trade. These terms establish the responsibilities of buyers and sellers regarding:
- Distribution of costs: Who covers the transportation, insurance, and additional service costs.
- Document processing: Who manages the documents required for export and import.
- Delivery point of goods: The location where the cargo is transferred to the buyer or an intermediary.
- Risk responsibility: Who assumes the risks of damage or loss at each stage of transportation.
What does the FOB Incoterm consist of?
FOB (Free On Board) is an Incoterm exclusive to maritime transport. Under this term, the seller is responsible for the costs and risks until the goods are loaded onto the ship designated by the buyer. From that moment on, the responsibility is transferred to the buyer.
Seller’s obligations under FOB:
- Prepare and pack the goods.
- Manage the necessary documentation (invoices, packing list, etc.).
- Transport the cargo to the port of shipment.
- Complete customs clearance at the origin.
- Assume costs until the cargo is onboard the ship.
Buyer’s obligations under FOB:
- Pay for the goods.
- Cover the ocean freight costs.
- Assume destination costs (customs, inland transportation, taxes).
Why is choosing the FOB Incoterm beneficial?
The FOB Incoterm offers several advantages for importers, especially those seeking greater control over transportation and destination costs. Some of its main advantages include:
- Ease of documentation
The seller handles all documents at the origin, such as fees, licenses, and certifications. This is especially beneficial for first-time importers, as it avoids complications when not being present in the country of origin. - Greater control at destination
The buyer chooses the carrier and controls local costs, avoiding unnecessary surcharges and adjusting delivery times according to their logistics strategy. - More information on the cargo
With FOB, the buyer receives constant updates on the location and status of the shipment, allowing them to foresee delays or logistical issues. - Flexibility in rates and transit times
By selecting the carrier, the buyer can opt for more convenient rates depending on urgency, reducing costs when delivery time is not a priority. - Optional additional services
If insurance is required, the buyer has the freedom to choose the insurer that best suits their needs.
FOB vs. EXW Comparison
To better understand the differences between FOB and EXW, here’s a comparative table:
Remember!
Choosing the right Incoterm depends on the needs of both the buyer and seller. FOB is an excellent option for importers seeking greater control over their cargo in the international transport process, cost optimization, and more transparent logistics. If you are considering importing goods, analyzing the available Incoterms will help you make the best decision for your business and ensure an efficient and secure operation.
