Differences between FOB and FAS

FAS, also known as Free Alongside Ship, implies that the seller is responsible for making the goods available alongside the ship at the port as decided by the buyer. From this point, the responsibility of paying the costs, bearing the risk and liability, shifts to the buyer.

Once the goods are delivered to the port by the seller, the buyer must pay for the expenses incurred henceforth, including port fees, loading and unloading charges, etc.

FOB, or Free On Board, indicates the time at which the cargo liability shifts from the seller to the buyer of the goods. According to this incoterm, the seller must load the goods onto the vessel selected by the buyer. Once the goods are loaded, the risk passes to the buyer.

Under FOB, there are two types: FOB shipping and FOB destination. FOB shipping means the risk transfers to the buyer from the point of shipping or origin. On the other hand, FOB destination means the buyer assumes ownership and liability after the goods reach the destination.

-Advantages of FAS

-Buyer’s Control: Under FAS, the buyer has more control over the transportation of goods. He can choose the vessel and the freight forwarder and also decide how the shipment is loaded.

-Easy on Seller: The seller has fewer responsibilities to bear. Thus, he does not have much to worry about.

-Disadvantages of FAS

-Damage to the Goods: Under FAS, there is a chance that the goods may remain at the port for a long time if there is a delay in the arrival of the vessel. Thus, there are chances that the goods may suffer damage.

-Documentation Hassle: Lack of communication between the buyer and seller can cause complications. For instance, if all the documents are not arranged beforehand, the seller may have to face difficulties when making the goods available at the port.

-Advantages of FOB

-Lesser Responsibility for the Buyer: Under FOB, the buyer assumes lesser responsibilities as the seller is liable for cargo till it reaches the port of destination.

-Beneficial for Seller: The seller may be able to attract new clients if he has the ability to comply with the FOB requirements.

-Disadvantages of FOB

-Higher Cost for Buyer: Since the seller covers the risk and liability of the goods up to the port of destination, the buyer may have to pay higher charges. There is a possibility that he may get better freight prices if he arranges it by himself.

-Higher Risk for Seller: The seller bears maximum risk and responsibility as he is the owner of the goods till they reach the destination port.

Choosing the right intercom for your shipping contract can have a significant impact on the entire trade and transaction. Here are a few factors to assess before choosing FOB or FAS:**

-The Risk Factor: Under FOB, the buyer assumes the risk and responsibility when the goods are loaded onto the vessel. However, in the case of FAS, the risk transfers when the seller places the vessel alongside the ship. Thus, if the buyer wants to oversee the loading, they can choose FAS. Otherwise, they may opt for FOB.

-Type of Goods: The choice of goods also depends on the type of goods the buyer wishes to ship. If they have containerised goods requiring careful loading, they may choose FOB. However, to ship bulky items that cannot be containerised, choosing FAS is recommended.

-Cost of Shipping: If the buyer is looking to save some bucks, they can choose the FOB method, as the seller is responsible for bearing the expenses until the goods are loaded.

-Loading Control: If a buyer wishes to control the loading and do it himself, FAS is the right option. He can oversee the process and manage the risk, too.

-Cost of Origin Port: If the port of origin has high charges, sellers may want to opt for FAS.

Let us consider an example to understand how FOB and FAS work in the real world.

A garment manufacturer in China sells his products to a retailer in the US. Both the parties agree to FOB terms for their contract. Under this situation, the seller is required to transport the goods to the port, get export clearance and load the order onto the ship. Once the goods are loaded, the buyer’s responsibility begins.

Hereafter, the buyer assumes the risk and ownership of the goods in transit. He is required to bear all the costs associated with the transportation of the goods from the port to the destination in the US.

As the international trading landscape moves towards digitisation, the incoterms are also evolving. Artificial intelligence and digital processes are set to reshape the functioning of these incoterms.

For instance, digital/smart contracts can lead to automatic verification when the responsibility shifts from the seller to the buyer. Such processes can play a catalyst in reducing disputes and enhancing the efficiency of transactions.

Another futuristic aspect of these incoterms is the reduction of carbon footprint on the environment. Buyers and sellers must be mindful and choose the incoterms which will have a lesser impact on the environment.

The choice between FOB and FAS, FCA FOB, or any other incoterm depends on various factors, as mentioned above. However, it is crucial to include one of the incoterms to ensure that there is no dispute during the trade.

Yet another pivotal aspect of shipping is buying marine insurance for your goods. With the right insurance coverage, you can be at peace while your goods are in transit.

At TATA AIG, our marine insurance policy safeguards your cargo and vessel from any damages. We offer protection not only on sea routes, but also on the road, rails and air. We offer a simplified claim procedure and quick claim settlement too.

You get international coverage with our transit insurance, so your goods are protected during foreign trades. The best feature of our marine insurance policy is that it is affordable, customisable and can be bought by anyone engaged in transportation activities.

-Who decides which incoterm should be used in the contract?

The seller and buyer both mutually decided which incoterm to include in their contract. It is decided after considering various factors such as the type of goods, shipping cost, risk tolerance capacity and so on.

-Is FAS better than FOB for buyers?

Whether FAS is better than FOB depends on whether the buyer wishes to access more control over the shipping process. It is also a better choice when the goods are bulky and difficult to handle.

-Can FOB and FAS be used to ship goods through all modes of transportation?

No, FAS and FOB must only be used to ship goods through water transportation, which includes sea and river shipping.

-Is it necessary to purchase an insurance plan for the goods when using FOB or FAS?

Though it is not mandatory to purchase an insurance plan while using FOB or FAS, it is highly recommended to buy one as it provides adequate coverage to the cargo and protects against any damage during transit.