Meaning of fob (what is it, concept and definition)

What is FOB:

FOB is an abbreviation that corresponds to the initials of the phrase in English ' Free on board' which in Spanish means ' Free on board', and belongs to the list of Incoterms (international trade terms).

As such, FOB is a sale and purchase agreement used in international trade to refer to the conditions, rights and obligations that exist for both the buyer and the seller.

In particular, the expression 'free on board' means that it is the seller's obligation to bear the costs and costs of moving the merchandise to the port of origin or the port closest to the seller or producer, except for insurance costs. and freight, which means that once the merchandise arrives on the ship, its responsibility is transferred to the buyer.

It is important to highlight that the term FOB must be used solely and exclusively for those transactions in which the means of transport is a ship, that is, that the transfer of the merchandise can be done by sea or river, since in some occasions it is erroneously used to express oneself about transfers made by air or rail.

The parties involved in an international purchase and sale must take into account the use and management of the Incoterms since they will determine the obligations, duties and responsibilities of each one of them. When we are in the presence of the Incoterm FOB, it is to highlight that the transfer of the risk and responsibility of the merchandise occurs once it is on board the cargo ship.

Let us suppose that a merchandise sold under the FOB incoterm suffers some damage before being on board the ship, then the seller will be responsible for said damages and will have the obligation to replace the merchandise to be transferred to its port of destination, but if the loss or Damage to said merchandise occurs after being tackled on the ship. The responsibility is solely and exclusively that of the buyer, who must insure it to transfer it to the insurance company.

In Mexico, the chamber of commerce is responsible for the publication of the terms of international trade: Incoterms, however all those people and professionals that have to do with international trade activities must have knowledge of these.

FOB and CIF

The difference between these two Incoterms is evident, but what really differentiates the FOB from the CIF is that in the second, the freight and insurance of the merchandise is the responsibility of the seller, with which, it is understood that once the merchandise to the port of destination is when the responsibility is transferred to the buyer, which is completely different from FOB.

The acronym CIF corresponds to the expression ' Cost insurance and freight' which in Spanish means 'cost, insurance and freight'.

You can read more about the Incoterm CIF here.

FOB AND FAS

FAS is an acronym for the English language which means ' Free alongside ship' which in Spanish means “franco bedded ship”. In these two terms that belong to the terms of international trade, a small difference is evident. In relation to the FAS, the seller ends his obligations once the merchandise is placed on the side of the ship, transferring the risk of loss or damage to the buyer at that time, which in the FOB only occurs when it is on board the ship.

If you are interested in the meaning of logistics, click here.