Incoterms & trade contracts FOB

Free On Board

One of the most common terms in raw material trade, used only for sea and inland-waterway transport. The seller loads export-cleared goods onto the vessel nominated by the buyer at the port of shipment, and risk passes once the goods are on board. The buyer arranges freight and insurance; for bulk cargo the loading rate, laytime and demurrage must be agreed separately. For containerised goods FCA is the more accurate choice.

Related terms

Cost and Freight CFR

Used only for sea and inland-waterway transport. The seller loads the goods on board at the port of shipment and pays freight to the named destination port, but risk passes to the buyer when the goods are on board at loading, exactly as under FOB. The buyer therefore carries the transit risk and should arrange its own cargo insurance. Prices are quoted with the destination port, e.g. “CFR Iskenderun”.

Cost, Insurance and Freight CIF

A sea-transport term that adds, to CFR, cargo insurance taken out by the seller in the buyer’s favour. Under Incoterms 2020 the minimum cover for CIF is Institute Cargo Clauses (C) for 110 % of the contract value; if broader “all risks” (A) cover is wanted it must be written into the contract. Risk still passes when the goods are loaded on board at the port of shipment, so the seller pays freight and insurance but does not carry the voyage risk.

Free Alongside Ship FAS

Used only for sea and inland-waterway transport. The seller places export-cleared goods alongside the vessel nominated by the buyer (on the quay or a barge); risk passes there, and loading onto the ship and freight are for the buyer. Common for bulk and project cargo such as grain, timber, scrap and heavy lifts; for containerised goods FCA should be used instead.

Bill of lading (B/L) B/L

The key document of sea transport, issued by the carrier to show that it has received or loaded the goods. It has three functions: a receipt for the cargo, evidence of the contract of carriage and, when issued “to order”, a document of title. Because whoever presents an original can take delivery, it is the backbone of letters of credit and cash-against-documents deals. A “clean on board” B/L shows the goods were loaded in apparent good order.

Laytime

The time agreed in the contract during which the charterer or buyer may use the ship to load or discharge without paying extra. It is usually stated as a daily rate, e.g. “5,000 mt per day SHINC” (Sundays and holidays included) or “SHEX” (excluded). Laytime starts after the Notice of Readiness (NOR) is tendered and any agreed turn time has passed. If it is exceeded demurrage is due; if cargo work finishes early, despatch may be earned where agreed.

Explained in the trade handbook

Trade handbook