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Exporters, importers, international traders and domestic businessmen as well should understand well about FOB, CFR and CIF shipments. All these terms are three of the thirteen terms of delivery commonly used in international sales contract that are defined and the usage of which are standardized by the International Chamber of Commerce (ICC) as early as 1936. The latest revision of the 13 terms was made in 2000. The 13 terms of delivery are more commonly known as the INCOTERMS (International Commercial Terms).

INCOTERMS today have gained international standard meanings - as used in international contracts executed here in Asia or in North America or in other places of the world. While the parties to a contract of sale (buyer and seller) are free to define the trade terms the way they want it (and which may not coincide with the ICC interpretation of the INCOTERMS) - still, there is a need for exporters, importers, international traders and domestic businessmen to understand INCOTERMS. Simply because INCOTERMS have already gained a world-wide acceptance in the international market and it would be less complicated and less confusing to just ride on the interpretation prepared by ICC.

INCOTERMS 2000 have taken into account the increasing use in international trade of electronic tools and techniques like the use of electronic data interchange (EDI) facility. Also, changes in transportation techniques like the multimodal transport system have significantly altered the interpretation of the INCOTERMS. In short, there are changes in the INCOTERMS to keep attuned with contemporary trade practices, techniques, and policies.

Basically, the INCOTERMS determine the sharing of costs, risks, and responsibilities of the seller and the buyer. In the event something goes wrong with the transaction covered by a contract of sale, the INCOTERMS play a key role - as when the goods are pilfered while on board the ship, or a fortuitous event like a typhoon damages the goods; or the buyer goes bankrupt while the goods are in transit.

Going back to FOB (Free on Board)... this is an INCOTERM that refers to shipments by sea. The seller quotes a price that includes only the cost of goods and profit. Freight and insurance charges not included. The phrase FOB is usually placed after a price quotation. For example, the export price of a handicraft item that is being shipped from Manila to West Coast, USA is US$50/dozen. The price quotation should be written as follows: US$50.00/dozen FOB MANILA. A word of caution: FOB is meaningless without further indicating the port of shipment after the price. In this example cited, the port of shipment is Manila.

Let me give you an actual case to further illustrate the application of FOB shipments. …