FOB Vs. Incoterms - CITT

FOB vs. Incoterms This material has been prepared forCITT discussion purposes only and is notintended as legal or professionaladvice regarding selection of FOBterms or other issues affecting liability,obligations, or responsibilities, of buyersand sellers regarding the sale ofgoods. All content has been prepared forillustrative purposes only.CITT Webinar Series2

FOB vs. Incoterms Why do companies use delivery terms?– Provide a “shorthand” method forassigning responsibilities to buyers andsellers– Indicate where cost, and risk of loss,transfer from the seller to the buyer– Simplify complexities of logistics– Provide a standard, repetitive process fortrading partnersCITT Webinar Series2

FOB vs. IncotermsFOB1700’sAFTD(AmericanForeign TradeDefinitions)1919 (RAFTD in 1941)(Recommended to use Incoterms in 1980)IncotermsAllincludeda term for“FOB”1936 – Present(Now recommended forInternational trade worldwide)UCC(UniformCommercialCode)CITT Webinar SeriesBut North American1952 – Presentshippers have been(Recommended to useusing these FOB termsIncoterms in 2004)since 1952!3-8

FOB vs. IncotermsFOB: International vs Domestic Shipments but in North America (Canada,USA & Mexico) FOB is also useddomestically (originating fromAFTD and UCC “FOB” terms) “FOB”as an Incoterm is now recognized worldwide forinternational shipments CITT Webinar Series4-2

FOB vs. IncotermsNational Foreign Trade Council(Developed AFTD in 1919 – Revised 1941) Adopted at a Conference participated in bycommittees representing the: Chamber of Commerce of U.S.A. National Association of Manufacturers American Manufacturers Export Association Philadelphia Commercial Museum American Exporters and Importers Association Chamber of Commerce of New York State New York Produce Exchange New York Merchants AssociationCITT Webinar Series5

FOB vs. Incoterms The Uniform Commercial Code (UCC)was developed to address two growingproblems in U.S. business:– The increasingly unmanageable legal andcontractual requirements of doing business– Differences in state laws that made it difficultfor business people from different states to dobusiness with one anotherDeveloped under the direction of theNational Conference of Commissionerson Uniform State Laws, the American LawInstitute, and the American BarAssociation (ABA)CITT Webinar Series6

FOB vs. Incoterms First published in 1952, the UCC isa "code" or a "collection of statutes¹”, nota federal law, that seeks uniformityamong the states by providing legal rulesand regulations governing commercial orbusiness transactions Currently, the UCC (in whole or in part)has been enacted, with some localvariation, in all 50 states and the District ofColumbia, and in some U.S. territories¹Fullerton & KnowlesCITT Webinar Series7-1

FOB vs. IncotermsUCC Table of ContentsArticle 1: General ProvisionsArticle 2: Sales (Covers the sale of goods)Article 2A: Leases (Covers the lease of goods)Article 3: Commercial Paper (Promissory notes and bank checks)Article 4: Bank Deposits and Collections (Relationship between banks forchecks)Article 4A: Funds Transfers (Covers modern electronic funds transfers)Article 5: Letters of CreditArticle 6: Bulk Transfers (The "bulk transfer" of all of a business’ inventory)Article 7: Warehouse receipts, Bills of Lading and other documents of titleArticle 8: Investment SecuritiesArticle 9: Secured Transactions (Covers security interests in personalproperty, including accounts receivable, equipment and inventory)The UCC concerns many commercial issues, including the sale of goods, banking and security interests. It doesnot apply to other areas including the sale of real estate, service agreements or employment contracts.CITT Webinar Series8-1

FOB vs. Incoterms¹American Foreign Trade Definitions 1919²Incoterms Rules History, International Chamber of Commerce³Frecon, A. (1986) ‘Practical considerations in drafting F.O.B. terms in international sales’⁴UNIFORM COMMERCIAL CODE Act 174 of 1962, Michigan Compiled Laws Complete Through PA 346 of 2012CITT Webinar Series9-5

FOB vs. IncotermsCITT Webinar Series10

FOB vs. Incoterms Domestically, the definition of these terms,as well as a few others, derive from acombination of:(1) the provisions of the Uniform CommercialCode (the UCC)(2) the National Motor Freight Classification (theNMFC)(3) industry usage In other words, they have arisen over timethrough their use by business people andthe transportation industryCITT Webinar Series11

FOB vs. IncotermsThe most commonly used domestic shippingterms of sale in North America are:31. FOB Origin, Freight Prepaid“Origin”Terms2. FOB Origin, Freight Collect3. FOB Origin, Freight Prepaid & ChargedBack3“Destination”Terms4. FOB Destination, Freight Prepaid5. FOB Destination, Freight Collect6. FOB Destination, Freight Collect andAllowedCITT Webinar Series12-2

FOB vs. IncotermsFOB ORIGIN TERMSKey Point:Title to the goods (intransit) transfers to theBuyer at the Seller’sshipping dock(i.e. Buyer ‘owns’ the goods intransit)CITT Webinar Series13-6

FOB vs. IncotermsFOB DESTINATION TERMSKey Point:Title to the goods (intransit) transfers to theBuyer at the Buyer’sshipping dock(i.e. Seller ‘owns’ the goods intransit)CITT Webinar Series14-6

FOB vs. IncotermsWhich(UCC)FOBTermShouldBeandUsed?WhichFOB termshouldI use?The BuyerSellershould decide and agree between themselvesCITT Webinar Series15

FOB vs. IncotermsWhat the Carrier SeesCITT Webinar Series16-2

FOB vs. IncotermsWhy (UCC) FOB is Still Customaryin the U.S. and Canada There are only 6 terms: 3 origin & 3destination terms Long-standing use They clearly indicate for both buyer andseller:– Who pays for freight charges– Who owns the goods in transit– Who is responsible for filing freight claimsCITT Webinar Series17-2

FOB vs. Incoterms Hesitation to make changes that mightupset or confuse customers, or sendcustomers to the competition Knowledge gap:– Confusion about what FOB really means– Many North American companies seeIncoterms as only for international use– ICC recommends Incoterms DAT and DAP fordomestic use, but those terms makereference to “Customs” and “vessel”,causing many shippers to think they are stillfor international use onlyCITT Webinar Series18

FOB vs. Incoterms Ability to use UCC FOB terms throughoutthe NAFTA region No mention of Customs brokerage fees,duties or taxes (Note: NRI exception tothe traditional process of chargingCustoms formalities to the inland Buyer) No mention of insurance or ancillarycharges Complemented by customary use of thebill of lading with respect to billing terms,cargo insurance and claims processCITT Webinar Series19

FOB vs. IncotermsNRIs represent a likely exception to the use of FOBas a shipping term for Transborder shipments due toNRI payment of Customs formalities CITT Webinar Series20

FOB vs. IncotermsINCOTERMS 2010 Multimodal Terms–––––––EXWFCACIPCPTDAPDATDDP Ocean Terms––––FASFOBCFRCIFCITT Webinar SeriesUCC FOB TERMS FOB Origin Freight Prepaid FOB Origin Freight Collect FOB Origin Freight Prepaidand Charged Back FOB Destination FreightPrepaid FOB Destination FreightCollect FOB Destination, FreightCollect and Allowed21

FOB vs. Incoterms FOB is confusing for many shippers FOB should be stated completely Domestic shipments simply marked“Prepaid” are presumed to be “FOBOrigin, Freight Prepaid” but you neverknow what a shipper does, or does not,know about the appropriate use of FOB In North America some shippers use FOBas a domestic term, some use it as anIncoterm, and some just don’t want toknowCITT Webinar Series22-3

FOB vs. IncotermsIn Summary: but in North America (Canada,USA & Mexico) it is also useddomestically (originating from“UCC” FOB terms) Incoterms“FOB” is used worldwide for international shipments CITT Webinar Series23

FOB vs. IncotermsWebinar SeriesPresents:2017 SalarySurvey ResultsPresented by:Lou Smyrlis, Group Publisher, Truck News,Truck New West, Today’s TruckingMarch 29, 201712:00-1:00 pm ESTCITT Webinar Series

FOB vs. Incoterms Cornell University Law School (n.d.) S. 2-319. F.O.B. and F.A.S. terms[Online]. Available from: https://www.law.cornell.edu/ucc/2/2-319(Accessed: 6 October 2015).Duke Law (2015) Uniform Commercial Code (UCC) [Online]. Availablefrom: https://law.duke.edu/lib/researchguides/ucc/ (Accessed: 4October 2015).Frecon, A. (1986) ‘Practical considerations in drafting F.O.B. terms ininternational sales’, Berkeley Journal of International Law, 3 (2), Winter,pp.346 -367 [Online]. Available ontent.cgi?article 1037&context bjil (Accessed: 3 October 2015).Fullerton & Knowles (2015) Uniform Commercial Code Sale Of Goods[Online]. Available from: ml(Accessed: 5 October 2015).Incoterms 2010: The US view. Available ms-rules/the-us-view/CITT Webinar Series25

FOB vs. Incoterms INC.com (n.d.) ‘Uniform Commercial Code (UCC)’, [Online]. Availablefrom: -codeUCC.html (Accessed: 1 November 2015).Incoterms Rules History, International Chamber of Commerce. Availablefrom: srules/incoterms-rules-history/Johnson, W.P., Analysis of INCOTERMS as Usage under Article 9 of theCISG. Available n02.htmlM-O (n.d.) ‘Bill of Lading’, [Online]. Available from: http://www.mo.com/pdf/bill of lading.pdf (Accessed: 1 November 2015).Mantissa (n.d.) Incoterms 2010: The U.S. view [Online]. Available ms-rules/the-us-view/(Accessed: 6 October 2015).National Foreign Trade Council (1919) American Foreign TradeDefinitions [Online]. Available from:http://babel.hathitrust.org/cgi/pt?id mdp.35112203732872;view 1up;seq 5 (Accessed: 2 October 2015).CITT Webinar Series26

FOB vs. Incoterms Ramberg, J. (2011) ICC Guide to Incoterms 2010. Paris: ICC ServicesPublications.Shipping Solutions (2015) Terms of Trade: Uniform Commercial Code andIncoterms 2000-Part 1 [Online]. Available part-1 (Accessed: 4 October2015).State of Michigan (2015) Uniform Commercial Code [Online]. tireuccbook 18831 7.pdf(Accessed: 6 October 2015).Uniform Commercial Code, U.S. Small Business Administration. Availablefrom: tand-business-law-7USCIB News (2004) UCC revision drives use of Incoterms for domesticcommerce [Online]. Available from:http://www.enewsbuilder.net/uscib news/e article000300934.cfm?x b11,0,w (Accessed: 6 October 2015).CITT Webinar Series27

The most commonly used domestic shipping terms of sale in North America are: 1. FOB Origin, Freight Prepaid 2. FOB Origin, Freight Collect . FOB ORIGIN TERMS Key Point: Title to the goods (in transit) transfers to the Buyer at the Seller’s . –Confusion about what FOB really