Tuesday, June 19, 2012


There was a debate on LinkedIN about what the FOB delivery term means. As I thought people could learn from that, I wanted to share my response.

The Uniform Commercial Code, Article 2 defines FOB and allows both FOB Origin, FOB Destination terms. The UCC applies to only for the sale of goods on transactions within in the U.S. or where the applicable law is one of the States of the U.S.. The problem is the UCC definitions don't match INCOTERMS Definitions published by the International Chamber of Commerce.

In the UCC FOB term has nothing to do with ocean shipments. It could be free on board any carrier. Under INCOTERM FOB only applies to Ocean shipments. So what the UCC defines as FOB Origin, INCOTERMS refers to as Ex-Works.

To avoid conflicts and claims based upon different interpretations between the parties, when you specify the deliver term, you should always make reference to the specific source of the definition you want to apply. For example
"FOB Origin (Named Location) as defined under the Uniform Commercial Code" or
"FOB (Specified Port and Ship) as defined by INCOTERMS 2010."

My personal preference has always been to use the INCOTERMS.
1. They can be used both domestically in the U.S. and internationally.
2. They apply to everything that may be shipped not just goods.
3. Each term has a clear definition of the responsibilities of both parties for all the required activities.
4. They clearly establishes where the risk of loss transfers.

When I'm purchasing something of high value I want to select the right term so I can manage the risk. For example with a high risk item I probably want to use Ex-works so I can manage and control the selection of the carrier, the shipping lanes, as both of these may have different risk. I want to specify how the item will be packed and packaged to prevent loss. I also purchase the right insurance for the potential loss etc. as standard insurances may not cover the full value if its lost of damaged.

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