Free on Board Contract.
Under sales of goods act, there are 3 forms of contract involving SEA TRANSIT, very often, contract of sales involves transit of the goods via sea. The commonest forms of such contracts are 1st FOB 2 ND CIF & 3RD Ex-ship contract. It may also be noted that it is open to the parties to vary the terms to suit their convenience, for eg. Some CIF terms may be introduced in a FOB contracts, and so on. Let us get to know about meaning these 3 contracts in detail.
F.O.B. stands for 'Free on Board' and F.O.R. stands for 'Free on Rail'. FOB contract can be described as a flexible instrument, Because the buyer has to nominate a ship and the seller has to put the goods on board of vessel for account of the buyer and procuring a bill of lading. In a FOB contract, the seller is required to deliver the goods on board the sip (or on rail), named in the contract.
The seller has to bear all expenses and including shipment of goods on behalf of the buyer, who is responsible for their freight, insurance and subsequent expenses. Thus, as soon as the goods are put on the board, the property in them passes to the buyer. This will be so even if the goods are not specific or ascertained.
Some duties of seller in FOB consist of following thing such as:
1. The seller must deliver the goods on board at his own expense.
2. He must give notice of shipment to the buyer to enable him to ensure goods.
3. FOB relieves the seller of liability the minute the goods are loaded onto the ship or have “passed the ship’s rail”. Its is buyer liability thereafter.
With this are also some duties of buyer such as:
1. The buyer cannot claim delivery of the goods before shipment.
2.He must apply for licence to export or import, if necessary.
With this when the goods are places on board, the goods are deemed to be delivered, and the property in the goods passes to the buyer the ship is board. Or not pass if the seller reserves the right of disposal. Most buyers choose FOB because most affordable or cost-effective option, and with this, the buyer has more flexibility and control of the terms like cost etc. But Generally the unit prices of goods to be provided under FOB terms is higher than Ex-ship shipments.
Talking about liability in FOB. In most cases of FOB, liability and title possession shifts when the shipment leaves the point of origin, and The buyer is liable to pay the price even if the goods are lost in transit.
FOB can be best explained via example i.e Jeff’s pickup company purchases Rs10,000 of wiring parts from Ann’s Wiring, Inc. Jeff pays the shipping costs and the parts are shipped FOB Ann’s Wiring, Inc. On the way to Jeff’s factory, the trucker gets into an accident and the parts are ruined. Jeff tries to sue Ann, but he can’t because the title of the goods already passed to him. The parts were Jeff’s as soon as they were loaded on the truck.
Lastly I would like to end by saying that, it is clear that in the cases of International trade, Sea route is the most common and cheapest mode. FOB terms are important as they reflect when the risk of loss shifts from seller to buyer. They are most important in international transactions, and in transactions involving delicate or vulnerable items.