FOB CONTRACT

    FOB literally means Free on Board. "FOB port" means, seller pays for transportation of the goods to the port of shipment, plus loading costs. The buyer pays cost of marine freight transport, insurance, unloading, and transportation from the arrival port to the final destination.

      Devalin J in the case of El Amria and El Minia approved three types of FOB contracts. Simple FOB is a contract of carriage arranged either by the buyer himself or via agents. The next one is Classic FOB where the buyer has to nominate the vessel of shipment and take out insurance if necessary. Lastly , FOB with Additional Services, where the seller makes the arrangement for carriage and sometimes for insurance in his name, but he does this for the buyer.

Buyer’s Duties:

a)       Nominate a sustainable vessel for the goods and voyage and also bear all risk and cost from the time of delivery of goods on board ship.

b)       Have to make payment for the goods.

Seller’s Duties:

a)       Package and supply goods appropriately.

b)       Pay all the cost up to delivery and loading of the goods and has to provide the proof of delivery and other information to the buyer to ensure goods.

Buyer’s Advantages:

a)       Determines the speed and cost of the cargo’s transport.

b)       Does not need to examine the goods on delivery on board in order to reserve his right to rejection (SOGA (1979) ss34 & 35)

c)       If there is allowance agreement between the parties and any defect cause outside this the buyer can reject the goods or documents.

Buyer‘s Disadvantage:

a)       Buyer need to nominate the ship or vessel for loading and failure to do so may repudiate the simple FOB contract.

b)       In case of any substitution of vessel for loading, buyer has to bear all additional expenses.

Seller’s Advantages:

a)       Only responsible for the stage of loading operation until the goods pass the ship rail.

b)       The risk and property generally passed on shipment.

c)       Spent low transport cost and limited liability for cargo under this term.

Seller’s Disadvantages:

a)       If buyer takes out insurance for the cargo the seller is not privy to the contract.

b)       If goods are lost or damaged in transit the buyer may reject the goods validity and the seller will bear the loss.

c)       If the seller had also taken out insurance under the extended fob, rights to claim for the insurance will transfer to buyer (MIA 1906, s50)

To conclude it may say that under a FOB contract the buyer bears the risk of fluctuations in freight rates and insurance premiums. In FOB contracts it needs to use the Sale of Goods Act. However under this contract both parties the buyer and the seller have some duties and also advantages and disadvantages. So in making a contract sometimes it is helpful for the buyer and sometime for the seller.