In the modern era of containerization, the term “ship guardrail” is somewhat archaic for commercial purposes, as with a sealed shipping container, there is no way to determine when damage occurred after the container was sealed. The standards have taken note of this. The 1990 Incoterms stipulate: A free on board (FOB) contract is a contractual clause in the sale of goods where the seller bears the cost of delivering the goods by a specific route determined by the buyer. As soon as the goods are on board, ownership and risk pass to the buyer. In the case of FOB contracts, the buyer assumes full responsibility for the goods shipped at the beginning of the journey. In contrast, in a FAB Origin contract, Company A would become the owner (assuming the costs and risks) at the time and place where the product is created (Perth). The use of “FOB” dates back to the days of sailboats. When the ICC first drafted its guidelines for the use of the term in 1936,[2] the ship`s rail was still relevant, as goods were often passed by hand over rail. In 1954, in Pyrene Co. Ltd. v.
Scindia Steam Navigation Co. Ltd.[3], Devlin J. described the situation in a question of liability under an FOB contract as follows: Although FOB has long been referred to as “cargo on board” in sales contract terminology, this should be avoided as it does not exactly correspond to the meaning of the acronym as stated in the UCC. [7] FOB contract mentioned 1 in the Encyclopedia of Forms and Precedents In the case of sale of fob goods (free on board), the seller is obliged to deliver the goods on board the ship to the contractual port1 at his own expense for carriage to the buyer. The terms of the contract may specify the vessel or line on which the goods are to be loaded or authorize the buyer to give subsequent instructions to the seller with respect to shipment,2 the timing of such instructions being essential.3 If the contract contains terms that specify: Suppose you (Company A) purchase product X from Company B. Company B manufactures product X in Perth and you sell product X in Sydney. If your contract says “FOB, Adelaide Warehouse”, it means that Company B will cover the costs and assume the risk of moving product X from its base in Perth to the Adelaide warehouse. Once product X is in the Adelaide warehouse, it belongs to you, meaning you bear the cost and risk of safe transport to your base in Sydney.
A 2018 study by Ki-Moon Han of the Korea Customs Research Society examines the complexities of FOB contracts and explains that they are often misunderstood. According to Han, increasingly sophisticated contracts are being used to meet the needs of international traders. The author notes that there is often confusion because the parties involved in the contracts misunderstand FOB Incoterms, sales contracts, contracts of carriage and letters of credit. Han urges companies to exercise caution and clarify the type of FOB they take so that risks and responsibilities are clear. FOB contracts release the seller from any liability as soon as the goods are shipped. Once the goods have been loaded – technically “passing through the railing of the ship” – they are considered to have been delivered to the control of the buyer. When the trip begins, the buyer then assumes all responsibility. The buyer can therefore negotiate a more favorable price for freight and insurance with a carrier of his choice. In fact, some international traders try to maximize their profits by buying FOB and selling CIF. FOB, “Free On Board”, is a term in international trade law that specifies when the respective obligations, costs and risks in the delivery of goods are transferred from the seller to the buyer in accordance with the Incoterms standard published by the International Chamber of Commerce. FOB is only used in non-containerized sea freight or inland navigation. As with all Incoterms, FOB does not define when ownership of the goods passes.
The FOB contract is referenced at 1 in Halsbury`s Laws of England Don`t know what a freight forwarder is? Freight forwarders explained! The terms of the FOB contract may specify the vessel or line on which the goods are to be loaded or authorize the buyer to give the seller additional instructions regarding shipment. See Halsbury`s Laws of England 41 (4th), 356. If the contract provides that the vessel is to be appointed by the buyer, a breach of these conditions would give the seller the right to terminate the contract for breach of the condition.