FOB is an abbreviation that corresponds to the initials of the English phrase ‘Free on board’ which in Spanish also means ‘Free on board’, and belongs to the list of Incoterms (international trade terms).
As such, FOB is a sales 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 term ‘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 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 emphasize that the term FOB must be used only and exclusively for those transactions in which the means of transport is a ship, that is, that the transfer of the merchandise can be carried out by sea or river, since in some occasions it is Wrongly used to express about transfers made by air or rail.
The parties involved in an international sale must take into account the use and management of the Incoterms since, these will determine the obligations, duties and responsibilities of each of them. When we are in the presence of the Incoterm FOB it is to emphasize that the transfer of risk and responsibility of the merchandise occurs once it is on board the cargo ship.
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 such damages and will have the obligation to replace the merchandise to be transferred to its port of destination, but if the loss or Damage of said merchandise occurs after being approached on the ship, the responsibility is solely and exclusively from the buyer who must insure it to transfer to said insurance company.
In Mexico, the Chamber of Commerce is responsible for the publication of international trade terms: Incoterms, however all those people and professionals that have to do with international trade activities should 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 the 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 FOB and CIF here.
FOB AND FAS
FAS is an acronym for the English language that means ‘Free alongside ship’ which in Spanish means “free lying on the ship”. In these two terms that belong to the terms of international trade there is a small difference. In relation to the FAS, the seller ends its obligations once the merchandise is placed next to 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.