The term FOB gets thrown around a lot, and could get confusing between its customs context and Incoterm context. We demystify FOB here!
October 30, 2020
FOB value... FOB incoterms... we tend to see the term FOB popping up in places from international procurement to deals with between bulk sellers and buyers. If you are new to shipping, you may see the term FOB pop up in multiple places with seemingly different meanings.
We’ll break down what FOB means as an incoterm and also what FOB value means when it comes to customs clearance.
FOB Free On Board as an Incoterm:
Incoterms (short for International Commercial Terms) are a set of rules created by the International Chamber of Commerce which defines whether a seller or buyer is responsible for the costs and risks associated with delivering goods. Seller, in this case, refers to the exporter or shipper, while buyer refers to the recipient or consignee. The latest version of the incoterms are Incoterms 2020.1
Free On Board (FOB) is an Incoterm where the seller is responsible for shipping charges and is liable for the goods up until the goods pass the railings of the outbound ship. Once the goods pass the ship’s railings, the buyer will be liable for the goods and covers the costs of shipping. Whether you’re a buyer or seller, be sure to work with an international shipping and freight forwarding expert you can rely on.
What the Seller is Responsible for in a FOB Arrangement
Origin warehouse - where the goods are held prior to the delivery. This could be the seller’s own warehouse or their carrier’s warehouse, such as a Free-Trade Zone warehouse or regional distribution centre.
Transportation to the origin port - first mile delivery from the origin warehouse to the port. If you’re working with Janio, we’ll handle this leg of the delivery after you’ve dropped it off at any of our designated drop-off points.
Documentation - The seller needs to provide the following documentation: Bill of Lading, Commercial invoice, insurance certificate, packing list and export license.
Origin customs clearance - Origin customs clearance, also known as export clearance is still under the responsibility of the seller.
What the Buyer is Responsible for in FOB
Line-haul to last mile freight - the buyer is responsible for arranging transportation from line-haul, to unloading and last-mile delivery along with their respective costs.
Destination customs clearance - The buyer will be responsible for import clearance for the shipment.
In addition to requiring the documents provided by the seller earlier, import licenses and other documentation like business registration or tax ID’s will be needed depending on the destination country.
Destination warehouse - where the buyer will store the delivered shipments. This can be either the buyer’s in-house warehouse or one run by their carrier, like a distribution center.
Insurance - As the goods are the buyer’s responsibility during the line-haul journey, the buyer is usually responsible for insuring the goods.
What does FOB Value Mean in Customs Clearance?
Terms like FOB value and CIF value are sometimes used by countries when calculating the customs value of a shipment.
The FOB value of a shipment is the price of the goods and any costs incurred by the seller in getting the goods ready for export, such as packing costs. Countries like Australia2 and the USA3 calculate the customs value of goods based on how much the ‘transaction value’ or the ‘price actually paid or payable’ by the importers are. This amount does not include costs related to international freight or insurance.
CIF value on the other hand includes the FOB costs along with the costs of international freight and insurance as well. This method is used by countries like Singapore, Malaysia, and Indonesia.
Navigating these differences in customs clearance between countries can get tricky at times. Working with experienced forwarders with customs expertise like Janio can help minimise the chances of your shipments facing issues in customs.
Whether you’re a seller or a buyer in a FOB shipping arrangement, Janio wide logistics network and range of services have you covered. Whether you need an end-to-end solution or just one service from customs brokerage, international line-haul, or domestic shipping our flexible options always have the right fit for your shipping needs. To get a quote or to find out more about our services, reach out to us via the banner below!