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Free on Board: A Comprehensive Guide to Shipping Responsibilities
Definition & Meaning
The term "Free on Board" (FOB) refers to a shipping arrangement in which the seller is responsible for the goods until they are loaded onto a transport vessel. At this point, the responsibility shifts to the buyer. This means that the seller must ensure the goods are cleared for export, while the buyer is responsible for arranging transportation and covering all associated costs once the goods are on board. The FOB clause protects the buyer from risk until the goods are safely loaded onto the transport vessel.
Table of content
Legal Use & context
FOB is commonly used in contracts related to the sale of goods, particularly in international trade. It clarifies the responsibilities of both parties regarding delivery, payment, and risk management. Understanding FOB is essential for businesses engaged in shipping goods, as it helps them determine liability and costs. Users can manage FOB agreements using legal templates available through US Legal Forms, which are drafted by qualified attorneys.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A company in the United States sells machinery to a buyer in Europe. Under an FOB agreement, the seller is responsible for getting the machinery to the port and loading it onto the ship. Once the machinery is on board, the buyer takes on all risks and costs associated with shipping.
Example 2: A small business sells handmade crafts online. They use an FOB clause in their sales contracts, ensuring that they are only responsible for the goods until they are loaded onto the delivery truck. After that, the buyer assumes responsibility for the shipment (hypothetical example).
State-by-state differences
Examples of state differences (not exhaustive):
State
FOB Variations
California
FOB is commonly used in contracts, with specific state regulations on shipping.
Texas
FOB terms are recognized but may have additional local shipping laws.
New York
FOB agreements are standard, but parties should be aware of local customs regulations.
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
Comparison with related terms
Term
Description
Difference
Cost, Insurance, and Freight (CIF)
The seller covers costs, insurance, and freight until goods reach the destination port.
FOB transfers responsibility at the loading point, while CIF includes delivery to the destination.
Ex Works (EXW)
The seller makes the goods available at their premises, and the buyer assumes all responsibility from there.
FOB involves loading the goods onto a transport vessel, whereas EXW does not.
Common misunderstandings
What to do if this term applies to you
If you are involved in a transaction that includes an FOB clause, ensure you understand your responsibilities regarding shipping and risk. If you are the buyer, arrange for transportation promptly after the goods are loaded. If you need assistance, consider using US Legal Forms to access legal templates that can help you draft or review your FOB agreements. For complex situations, consulting a legal professional is advisable.
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