Pitfalls Of Using Less Appropriate Incoterms
Here we want to take a quick look at what it means to use the FOB (Free-On-Board) Incoterms. Of all the 2010 Incoterm types issued by the ICC (International Chamber of Commerce), the FOB Incoterms, specifically, are among the most widely used. Unfortunately, they are widely misused as well, and staying abreast of the pitfalls of this specific type generally leads to a better understanding of their benefits.
A Closer Look At Specific Incoterms
What follows is a detailed description of FOB Incoterms’ main characteristics, as well as a few suggestions for good practice while using them:
The FOB Incoterms, in the context of international transactions, are origin-based. This means that both the cost and risk involved in using these Incoterms are transferred from vendor to buyer at the country of origin. From this point onwards, it is the purchaser who holds all responsibility for transporting merchandise to the destination country.
How Inertia Creates Confusion
FOB Incoterms are reserved for maritime transportation. The 2010 Incoterms are divided into two groups, according to the transportation modes they support. One group contains those terms meant for use with any transport mode and the other contains exclusively maritime transportation terms. The FOB Incoterms belong to the latter. Most international companies use no more than one or two of the 2010 Incoterms in each transaction, at the most. Because of the inertia generated by frequently using the same terms, it is common to see FOB Incoterms being used for air transportation, although these terms are clearly reserved for maritime use.
The FOB Incoterms, historically, were meant for the sale of merchandise in bulk. Decades ago, before container ships were first adopted by merchandise transporters, any ship could be used to carry and transport any given load. Through time, loads carried inside containers have increased in volume, and nowadays containers are very widely used for transportation. Today, many companies continue to employ FOB Incoterms, which has been the case for years, and many of them are making use of these terms without realizing that the ICC revises the list of Incoterms available, and incorporates new ones adjusted to actual logistics approximately every ten years (1990, 2000, 2010).
Which Incoterms Are Appropriate For Containers
This lack of research is the root cause for another misuse of the FOB Incoterms: use with containers. A container is meant to be combined with other transportation modes and, as such, it is a preferred practice to use Incoterm types which are designed specifically for this combination. This application is only possible with multimodal, non-maritime exclusive Incoterms. If you are using a container, employ FCA (Free-carrier) Incoterms instead, like a “container terminal” FCA. Your costs will be greatly lowered, and the risks will be minimized, according to the more appropriate and up-to-date terms.