F INCOTERMS

Free Terms

The terms Free Carrier (FC or FCA), Free Alongside Ship (FAS) and Free on Board (FOB) provide that the seller is responsible for arranging for and delivering the goods to a carrier.  FOB and FAS refer to sea or inland waterway transport.

Under FAS the seller must complete all export documentation and is responsible for the carriage of goods until brought alongside the ship at a named port of shipment. The seller is responsible for clearing the goods for export. The buyer assumes responsibility from that point onwards.

Free Carrier (specified place) I

Free Carrier means the seller is to deliver the goods to a carrier at a specific place whether this carriage is by rail, road or sea.    The buyer pays for the carriage onwards from that point.

The seller must deliver the goods to a named place by any means of transport (in order for them to be cleared for export, (where applicable to the main carrier). The seller is responsible for the goods until they reach the specified place.

The seller may arrange the main carriage, but the buyer must pay the cost. The buyer selects the main carrier and makes the arrangements itself or through the seller on its behalf. The buyer becomes responsible for the goods once they enter the carrier’s possession at the named place and has responsibility for the cost of onward transport.

Free Carrier (specified place) II

The Free Carrier term is used primarily when the goods are to be transported by container (whether by ship, road, or rail or a combination).  The seller completes its obligations when it delivers the goods into the custody of the carrier.  The risk of damage is transferred at this point.

The seller’s obligations are as above (for ex-works) save that in addition, the goods must be placed in the charge of a carrier named by the buyer at the agreed place in a manner agreed or customary or by loading them onto the carrier’s vehicle.

The seller must obtain any export licence or other official authorisation necessary for the export of the goods and if required pay any taxes associated with the exportation.  He must provide customary or agreed packaging. He must assist the buyer in arranging the contract of carriage.

The buyer’s obligations are as set out above (for ex-works) except that the buyer takes charge and responsibility of the goods at and from the point at which the goods are delivered to the carrier.

There are variations. These must be clearly specified in the relevant contract so that the position is unambiguous

Free Alongside Ship

FAS means free alongside ship.  It is similar to FCA.  The seller discharges its obligations when the goods are delivered alongside the buyer’s carrier.  The loading on board ship is the buyer’s responsibility.  FAS is commonly used in circumstances where the buyer has a matching contract for carriage with the carrier.

Free Alongside Ship means that the seller is responsible for arranging and paying for delivery of goods along the ship, which will undertake the carriage by sea. The buyer pays for loading and the carriage from that point onwards.   The seller’s obligation is to deliver the goods to a named place by any means of transport and to have them cleared for export by the main carrier. The seller’s responsibility ends at this point.

The carriage is arranged by or on behalf of the buyer at its cost. This may be done by the seller on its behalf.

The seller’s obligations are as above with the following differences. The seller delivers the goods, and the buyer places them alongside the vessel or loading berth.  The seller furnishes proof of delivery and provides the assistance requested by the buyer in providing the documents to facilitate export.

The buyer’s obligations are as above. It must give notice to the seller of the time and place of delivery, having contracted for the carriage of the goods with the carrier. The buyer pays all appropriate licences, authorisations and complies with customs requirements both in the country of import and export.

The INCOTERMs contemplate certain additions being made to clarify situations where other issues may arise such as terminal handling charges. The relevant contract should make the position clear.

Free on Board (FOB)

Free on Board (FOB), as with FAS, makes the seller responsible for delivering the goods to a carrier chosen by the buyer. The seller is responsible up to the point that the goods pass over the rails of the ship at the named port. The seller arranges export documentation. The buyer is responsible from the point at which they reach the ship or other means of transport.

Free on board (named ship import or shipment)

The responsibilities are the same as for FAS, except the buyer assumes the further responsibility of placing the goods on board the ship that has been nominated by the buyer at its berth at the agreed port of shipment.  The export value of goods is founded on the FOB calculations.

The seller’s obligations are as above, except that it must go further and deliver the goods to the buyer by placing them on board over the rails of the vessel which has been nominated and notified.  The seller obtains the export licence, if necessary and is obliged to provide proof of delivery in the manner agreed.

The buyer is to give notice of the time, location and ship for delivery, having contracted for the carriage of the goods. The buyer is responsible for all appropriate licences, authorisations and costs from this point forward.

The term FOB sometimes has different meanings in commercial practice.  In US practice, FOB can either be at the place of shipment or the place at the destination so that in the latter case, it carries the further obligation to  ensure shipment to the point of destination.

FOB variants

There are three main types of FOB contract.  Under the first, the buyer is required to nominate a suitable ship.  The seller places the goods on board under a contract of carriage which is made with the carrier, which contract is made by the seller for the account of the buyer.

The seller may use a bill of lading which shows it as consignor and is to its order.  He then transfers it to the buyer, subject to the payment arrangements.  Marine insurance is normally arranged by the buyer directly if he wishes to insure. The seller may also be requested to organise it.

The second form of FOB is that with additional services.  The shipping and insurance arrangements are made by the seller, but this is done for and to the account of the buyer.  In this type of FOB contract, the buyer is not under an obligation to nominate a ship. The nomination is made by the seller. The seller enters the contract with the carrier by sea, places the goods on board the ship and transfers the bill of lading to the buyer.

The third type of FOB contract is a simple FOB contract. The buyer enters a contract of carriage directly or with an agent such as a freight forwarder.  The buyer nominates the ship, and the seller put the goods on board.

FOB Additional Services

In the case of a FOB contract which provides for additional services, the seller may take out the bill of lading in its own name or as agent for the buyer.  In accordance with general agency principles, the seller is entitled to charge the buyer for the freight and insurance premium, if he acts on the instructions on the buyer.

The seller may able to charge a commission for having procured the contracts of carriage and insurance unless the parties have otherwise agreed or there is a custom to the contrary.

The seller will make out two invoices, one showing the FOB value including all expenses up to the delivery of the goods on board ship and the other showing the additional services performed at the request of the buyer.

Notices and Nominations

Under the Sale of Goods Act, where a buyer is not aware of the shipping arrangements the FOB seller must give the buyer due notice so as to enable him to insure the goods and arrange sea transit.

The contract or the party’s later nomination may specify the ship or shipping line to which the goods are to delivered.  Alternatively, if the contract does not so provide, the seller is to nominate the ship.  It is the duty of the buyer to provide the seller with the shipping instructions which will enable the seller to bring the goods alongside and load them within the time stipulated by the contract.

The required instructions will generally include the name of the suitable ship in which the goods are to be carried and notice of probable readiness of the ship.  If the buyer fails to nominate a suitable ship, then the seller is entitled to treat to contact as repudiated and to claim for damages.

Passing of title

The Sale of Goods Act provides that the property (title) in the goods and the risk pass when the parties so stipulate or intend. There are a number of presumptions, but in the absence of other factors, the fall-back default position is that the property passes when the contract is made.

The sale contract should regulate when the title and risk are to pass.  This is usually the point at which the responsibility of the seller terminates and passes to the buyer.

With a FOB contract, the title to the goods usually passes when the goods are shipped. It is possible to provide that title / property in the goods is not to pass until payment.

If the seller contracts with the carrier and obtains a bill of lading as the case with a strict FOB and a FOB contract with additional services, the property in the goods is presumed to pass on the transfer of the bill of lading, subject to contrary wording or intention.  The latter is the usual presumption.

FOB Airport, Free Carrier

This expression is most appropriate in relation to air transport.   The FCA will name a particular airport and air carrier

The responsibilities are as above.  The seller is obliged to supply goods which conform to the contract together with a commercial invoice, to deliver the goods on the due date into the charge of the air carrier or its agent and to obtain a receipt from the carrier if required. The seller is obliged to give proper notice and instructions at the airport of destination.