Here is another interesting juxtaposition, the Free Alongside Ship and Free on Board. Since the majority of international trade is done with shipping containers, we will wager that you will see the FOB INCOTERM on trade invoices more often than the FAS INCOTERM. But for academic interest, let’s try to understand more of the differences between FAS and FOB.
In short, the primary difference is in the point where the risk of transportation is transferred from the seller to the buyer. For FAS shipment term, the risk is transferred when the cargo is placed ALONGSIDE the ship of the buyer’s choice, whereas for FOB shipment, the risk is transferred when the cargo is placed ONBOARD of the ship of the buyer’s choice. This ultimately means that for FAS shipments, the seller transfers transportation risks sooner than a FOB shipment, to the benefit of the seller instead of the buyer.
The right INCOTERM can make or break a trade deal, having a clear understanding of the differences between FAS and FOB will definitely up your game when you negotiate an international sale. Since INCOTERM changes once every 10 years by the International Chamber of Commerce, we need to keep ourselves informed of the changes to keep up with the dynamic transportation environment.
Difference between FAS and FOB
Let us highlight the main difference between FAS and FOB, knowing this fact will essentially cover 90% of what to know.
As we mentioned, the transfer of transportation risk for FAS is when the cargo is placed alongside the ship, whether it is a berth or port yard;
Whereas for FOB, the transfer of risk occurs when the cargo is certified to be on board of the vessel.
In both cases, the mode of transportation is chosen by the buyer. Therefore, it is the responsibility of the buyer to ascertain which port, berth, or yard for the seller to place the goods for a FAS shipment.
In a FOB shipment, the buyer is responsible for providing the necessary documents to place the cargo on board of the vessel.
Consequentially, any cargo damage loss or damage that happens before the transfer of risk lies with the seller. So, from the perspective of the seller, the sooner the shipper is able to transfer the risk of transport the cargo, the better.
Proof of Transfer of Risk
The INCOTERMs and many other articles available will not fail to mention the transfer of risk involved in a FAS or a FOB shipment. But in practical terms, the actual transfer of risk has to be backed by documents issued by qualified personnel, in order to audit the transportation process should the shipment of cargo did not go as planned.
Who issues the dock receipt?
The dock receipt is issued by the freight forwarder, ship carrier, or 3PL service providers. There is no particular format that is required to prepare a dock receipt, as long as the cargo details of the shipment are accurately described on the dock receipt.
More importantly, the dock receipt has to be endorsed by the receiver of the goods, specifically for FAS shipments, it is endorsed by the stevedores at the piers receiving the goods.
Who issues the “Received for Shipment” Bill of Lading?
This contract of carriage is provided by the primary logistics service provider that arranges the overall cargo shipment, it could be the freight forwarder or the shipping carrier that issues this contract.
“Received for Shipment” BL differs from the “Shipped on Board” shipment. Obviously, the clause “Received for Shipment” represents the cargo received by the transporter, but yet to be loaded on board of the vessel, once the cargo is loaded onto the vessel, the carrier can opt to amend the Bill of Lading to a “Shipped on Board” Bill of Lading.
But for FAS term shipments, the seller will invariably request a “received for shipment” bill of lading.
The proof of delivery that sellers seek for in a FOB term shipment is the “Shipped on Board” Bill of Lading.
Freight Forwarder, 3PL provider or ship carrier will only issue this form of Bill of Lading once the cargo is actually loaded onboard the vessel, and not sooner.
Different Primary Users of FOB or FAS Term
For containerized cargos, it is typical for the seller to hand the goods over to the carrier at a terminal and not alongside the vessel. In such situations, the FOB term is more suitable for such an arrangement.
In contrast, for non-containerized cargos, the cargo shipment is less standardized and more flexible. The buyer can dictate more aspects of the shipment such as: –
- The type of vessel chartered
- The method of cargo loading
- The term of the vessel charter
Meanwhile, the FAS shipment does not require the seller to arrange the cargo freight and it is therefore appropriate for the trade to be in FAS term.
Similarities between FAS and FOB
Apart from the three details that differentiate the FAS and FOB terms, to recap: –
- The point where the risk of transportation is transferred to the buyer
- The different form of document seller requires for the proof of delivery
- The primary use of FOB term (containerized goods) and FAS term (non-containerized goods)
But in fact, there are more similarities than differences for FAS and FOB terms.
The seller’s responsibilities for both INCOTERMs: –
- Arrange transportation to the agreed location (alongside ship or onboard of the ship)
- Organize all the permits required to clear local customs, and pay for all duties and tax applicable
- Make sure the buyer has all the documents and details necessary for the buyer to clear the importing nation’s
The buyer’s responsibility for both INCOTERMS are: –
- Arrange and pay for the ocean freight applicable
- Organize all import clearance procedures in the importing country.
- Deliver the imported cargo to their final destination
The International Chamber of Commerce updates the INCOTERM in a 10-year interval. When this blog post is written, the latest ICC INCOTERM update is for the year 2020. We’ve looked through to see if there are any changes for FOB and FAS INCOTERM for 2020 and 2010. There are no discerning changes that we noticed.
Shipping INCOTERMs are merely a primer to facilitate trade negotiations. In actual fact, everything can be up for discussion. So, as an exporter or importer, do not pigeon-hole into following the INCOTERM by the letter.
Nevertheless, since logistics service providers are well versed in dealing with the terms FOB and FAS, it is prudent to not stray too far from the INCOTERMs guideline.
What’s most important, however, is to understand fully the minute differences between different INCOTERMs, and the inherent transfer of risks involved with each INCOTERM.
Graphic Credits: International Chamber of Commerce
Additional Readings: International Chamber of Commerce