Incoterms F Group (FOB/FCA/FAS)

Overview

IINO san

Have you ever heard of FOB in work?

Yes, FOB is used frequently in our business.

Rookie

IINO san

It is one of the most frequently used terms ofIncoterms. But most people don’t use it correctly.

What do you mean?

Rookie

IINO san

I hadn’t known until recently, too. FOB is a term for trading using conventional ships. It would be fine if exporters and importers agreed, though.

Well, is it truly OK?

Rookie

IINO san

There is no legal obligation associated with Incoterms. But knowing the correct information is important, you know.

What You Can Gain from This Topic

• Review of Incoterms
• F Group’s Characteristics
• FOB, FCA, and FAS Delivery Points
• How to Prepare an Invoice

Review of Incoterms

Incoterms are broadly divided into four groups, as explained in the previous topic.

In the F Group, the cargo is handed over from the exporter to the transporting company designated by the importer at a specific location on the export side.

IINO san

Broadly, the terms which cargo is handed over at the port on the export side.

The exporter arranges the delivery to the exporting port, and then the importer takes over the responsibility and cost, right?

Rookie

IINO san

Yeah, right.

F Group’s Characteristics

F Group has three trading terms as the following:

・FOB (Free on Board)
・FAS (Free Alongside Ship)
・FCA (Free Carrier)

Conventional ship…?

Rookie

IINO san

That’s the kind of ship!

Conventional Ship

A conventional ship (or bulk carrier) is a vessel designed for transporting commodities such as grain, scrap, sugar, and large cargo by directly loading them onto the ship.

That’s a magnificent scale.

Rookie

Container Ship

A container ship is a type of cargo ship specifically designed for the efficient transport of standardized cargo containers.

IINO san

These containers are of uniform size and can be easily loaded, unloaded, and transferred between ships, trucks, and trains!

This one is more familiar to me.

Rookie

FOB in Practical Work

Although the above is the official rule, FOB is used as follows practically.

KEY POINT

Official Rule:

・Terms for conventional ship transport: FOB, FAS
・Terms for container ship transport: FCA
Practical Work:

・Terms for conventional ship transport: FOB, FAS
・Terms for container ship transport: FOB, FCA

IINO san

FOB was originally set for conventional ships. But FOB is also commonly used for containerships and air transportation.

Isn’t that a problem?

Rookie

IINO san

Incoterms are rules, not laws, so as long as there is agreement between the exporter and importer, it’s generally not a problem.

IINO san

The issue often arises from both parties not fully understanding the terms.

I see! We have to inform our customers properly!

Rookie

FOB, FCA, and FAS Delivery Points

The delivery point is the place where the burden of cost and risk shifts from exporter to importer.

IINO san

Memorize the delivery points for each condition in the F group!

FOB

The delivery point for FOB (Free On Board) is typically when the goods are loaded onto the designated vessel at the specified port of shipment.

FCA

The delivery point for FCA (Free Carrier) is when the goods are delivered to the carrier nominated by the buyer at the seller’s premises, such as a container terminal or warehouse at the export site.

FAS

The delivery point for FAS (Free Alongside Ship) is when the seller delivers the goods alongside the named vessel at the specified port.

IINO san

FAS is a term used for conventional ship transport, so the delivery point is next to the ship.

Difference between FOB and FCA

Understanding the difference between FOB and FCA can help you manage your risk. It’s important to consider the perspectives of both the importer and exporter.

In the exporter’s position, FCA has less risk than FOB. This is because the delivery point for FOB is after the cargo is loaded onto the vessel, whereas FCA occurs before vessel loading.

IINO san

If significant events like a strong typhoon, major earthquake, or fire occur during the period when the cargo is awaiting loading at the export terminal, the risk responsibility still lies with the exporter in FOB transactions.

I haven’t really thought about it deeply.

Rookie

IINO san

Exporters who have knowledge of international trade will typically specify FCA. However, during the Great Hanshin-Awaji Earthquake, containers at the Port of Kobe terminal suffered damage.

IINO san

The level of risk and responsibility differed significantly depending on whether FCA or FOB.

Indeed..

Rookie

How to Prepare Invoice

In the case of FOB, the unit price includes transportation costs to the export port.

The transportation cost is typically prorated based on quantity and added to the unit price.

IINO san

Sometimes, we may separate the product unit price and transportation cost for customs purposes, but generally, they are included in the unit price.

Summary

In Incoterms F Group, the delivery point is at the port of shipment.

In international trade, the point at which the risk and cost of transporting goods is transferred from the exporter to the importer varies depending on the terms of sale.

IINO san

Choosing the most suitable one is the best approach!

Enhanced Learning with Videos

Test Yourself

Reinforce your understanding of this topic by working through the exercises. Attempting the exercises without referring to the material as much as possible is advisable.

IINO san

The act of “remembering” helps it stick in your memory.