Question regarding supplier selling on FOB

Shipper vs Consignee

Hello all, I received below question from one of my readers..

I would like to know your opinion on this question to help out the reader and whether he is right in his below statement(s)..??

Dear Sir

Can a supplier selling on FOB – containerised cargo – arrange for shipment with the shipping line?

Am asking this question as the payment term to my buyer is “payment against fax copy of BL”.

If buyer arranges shipment, our concern is that if buyer arranges for shipment for this FOB sale, he can direct shipping company to release cargo without a BL.

THANK YOU!

Hariesh Manaadiar

Hey all, this is me Hariesh Manaadiar - your friendly neighborhood shipping blogger.. After having been in the shipping industry for around quarter of a century, I thought it was time that I shared some of what I have learnt over the years.. There you go, now you know something about me.. :) You can get to know more about me and what I know by following my blog for free.. :)

24 thoughts on “Question regarding supplier selling on FOB”..

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  1. Hi Andy.

    I’m from Brasil and I’ve never seen a cargo been released without at least one OBL, please explain when and how it was done.
    I hardly believe it is possible.

  2. Hi all,

    Answering your question and assuming you don’t want to change contract conditions: yes, you can arrange shipment with a shipping line even if a carrier is nominated by the buyer because FOB is a term used between importer and exporter and not really related to an ocean carrier. Just ask your buyer to provide all necessary instructions. This way you’ll be a booking party for the carrier and make sure you are stated as a shipper on the BL. Also the good thing is not to pay THC unless you are paid and instead of a buyer put to order as consignee on BL. However, if you don’t trust your buyer the best thing is to issue OBL and be in possession of all 3 copies unless all payments are settled. It’s cheaper than LC.

  3. His doubts are only imaginary. Whether he sells on FOB basis or CIF basis; against LC or CAD (cash against documents), he should be careful in not putting the name of importer as consignee on B/L, i.e., it should not be STRAIGHT B/L. If in the consignee space, he writes ‘To the order of ‘ (and blank endorses the B/L on reverse) or Name of the importer’s bank, the importer can not take delivery without payment. The original B/L will not reach importer unless he pays for the documents. The system is foolproof in this regard.

  4. Simple answer…
    If buyer is the price owner of the freight AND the booking party then it’s risky. All Fob shipments are risky in this way especially if the sellers agent is involved in the handling issuance of hbl. Here’s what to do;

    1… Only accept if with direct BL with main carrier(no freight forwarder involvement)
    2…Make sure you issue shipping instructions on MBL (no hbl)
    3…Leave cnee as “ORDER of Shipper”
    4…Make sure you are the booking party and that YOU are the recipient of transport documents.
    5…Keep as 3obl until you get paid and don’t even pay origin charges to the carrier until buyer pays
    6…Make sure origin charges are prepaid

  5. In Brazil the shipping line will not deliver the cargo without the original one or telex relase or seaway bill.

    The clearance procedure can be start with copy but after “green light” from brazilian customs you will have to submit the original MBL to shipping line.

  6. As per My Experience this is very High risk for any shipper for the payment. If the consignee is trusted person and having good relationship it may not make any risk. Generally, this is not advice able for any one who initially exports and better to go with payment terms as LC instead of telex transfer.

  7. Dear All
    what is the relationship betwwen incoterms and b/l ?
    bill of lading is evidence for carriage of goods
    and incoterms is for financial who pays and where

    if the buyer has original b/l and b/l is straight . so i think the buyer can clear his cargo

    in this question , what is the meaning of payment against fax copy of BL” that is mean the b/l change to be telex release or seaway bill

    i think there is no delivery cargo with copy of b/l unless if that is telex relase or seaway bill

    if it is first time to deal with client that is preferable to deal with him under L.C to guarantee ur rights

    Thanks

    Hassan

  8. There are many good comments on this, as this request is not the norm, you have to er on the side of caution.
    A fax copy of the B/L in Brazil for example will allow you to clear the cargo.
    I would refuse and advise once the payment is secured you get the B/L.
    If the buyer does not trust the shipper then use the L/C as this is what it is designed for.

  9. You may release the BL and forward to your Buyer and Originals you may retain them for FOB shipments. After receipt of payment you may send the same to your Buyer. In case, carrier release the goods without BL, after receipt of BL, you may lodge the claim against Carrier. Please note that as per shipping lie practice, if buyer unable to clear or abandon the goods, shipper is responsible for freight & other charges.

  10. A suppliers role is to arrange for transportation to the POL, Based on FOB.
    A buyer might as well be a freight forwarder and ask the shipping line to do so but the consignment will not be released at the POD until a telex report was received from the POL .

  11. Hi, to start with it would appear that the seller has got no real guarantee of payment and is willing to ship the cargo without proof that payment will be made on production of the fax copy of the B/L. Has the seller dealt with this buyer in the past and how was payment arranged if previous deals have been made?

    The shipping line will most probably not release any Bs/L without charges having been made.

    Other comments have rightly been made in that FOB is not appropriate for containerised cargo and that FCA should be used. Should a To Order B/L be issued, a bank will be involved with a L/C as the B/L is to the order of a bank who will make payment once all requirements of the L/C have been met.

    Personally I would want better security in getting paid for my product. Remember that Incoterms rules only stipulate risk, responsibility and cost. Variation to the rules can be agreed upon between seller and buyer but that is inadvisable as a more appropriate rule should then be used.

    Remember that litigation is very expensive particularly when across borders.

  12. If seller is afraid that buyer might get release of container without having possession of original bill then the seller should probably change payment terms to CIF to be more in control of shipping and release. Another alternative would be to ask buyer to pay with LC, so that payment is guaranteed.

  13. On FOB, the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment or already procures the goods already so delivered (source: Incoterms 2010). The buyer is therefore responsible for sea freight and insurance. The seller’s responsibility ends when goods are on board the vessel. All the risks and responsibilities thereafter passes to the buyer.

    Judging from your question, it seems the selling term is credit. If you are selling on credit and you are not familiar with the buyer or have doubts about receiving payment, you may need to consider selling under the letter of credit (LC), UCP600 (i.e. Uniform Customs & Practice). A LC is an undertaking by the issuing and or confirming bank that the seller will receive payment on production of complying presentation (article 7). Complying presentation includes clean bill of lading, invoice, etc. as stipulated on the LC.

    I suggest that you read the Incoterms and UCP600 for more information. This may give you a better idea on which incoterm is better for you and may mean more responsibilities and risks for you as the seller.

  14. In case of FOB shipment the seller’s responsibility ends once the consignment is delivered on board the ship. Supplier can arrange freight with condition “Freight Payable At Destination”. Further supplier is not parting with the Bill Of Lading hence the buyer cannot take delivery of the consignment without original B/L.

  15. Responses
    #1. If Seller arranges for shipment upto port of destination (and/or beyond), Incoterms should change to C or D terms.
    #2. If selling FOB (in fact, containerised cargo should be sold on FCA terms; FOB is not appropriate and can have residual uncovered risk for either party), main carriage is arranged by the Buyer.
    #3. If selling on F terms, the right of B/L is for the Shipper irrespective of who is contracting for the carriage.
    #4. If carrier releases cargo without OBL and without a proper LOI from the Shipper, it is at their risk.

  16. Suppliers have to arrange for shipment when selling on C&F or CIF only. However, the subject supplier is requested to provide the fax copy of BL under agreement so what he need to do is only to have the BL copy given by the shipping line according to the notice of shipment from the buyer rather than to arrange for shipment.

  17. Hello;
    The answer is no, the seller pays for transportation of the goods to the port of shipment, plus loading costs. The buyer pays cost of marine freight transport, insurance, unloading, and transportation from the arrival port to the final destination.

  18. Yes. If the contract for sale specifies so. If seller apprehensive about buyer releasing cargo without surrendering BL, route documents through bank for release against payment. Best would be LC from a first class bank.

  19. A very pertinent question from credit risk point of view.

    Most of the carriers do insist on production of original BL for delivery of cargo at destination. So in that way seller is secured as long as he holds original BLs.

    However, FOB sellers have to be cautious if BLs are issued by small time fright forwarders . The reason being that there is a possibility that a buyer can get the cargo released by colluding with forwarder without production of BL and not making payment to seller. Most often it will be a futile exercise to proceed legally against a small time freight forwarder for wrongful delivery of cargo.

    So as matter of precaution it always advisable to insist on a master bill of lading from carrier and not a house BL issued by a freight forwarder. Of course, I am not generalizing my statement on freight forwarder’s BL, as there are many reputed forwarders who are as good as carriers in terms of honouring the terms and conditions of contract of carriage.

    It is advisable to obtain ‘To order’ BL and not a straight BL. In some countries as per local laws there is no need for production of straight BL to obtain release of cargo.

    Similarly, in certain countries, a party who has been named as consignee in a BL (straight BL) can file customs documents as legal owner of goods (eg. USA). This would create challanges for an unpaid seller to secure possession of cargo if situation warrants.

    If a seller is dealing with unknown buyer on FOB terms should never agree for a waybill as a transport document. As waybill is not a negotiable document and there is no need for consignee to produce original waybill to secure release of cargo at detination.

    R S V Ramana Murthy

  20. 1) Hi I am John, assuming that buyer will arrange the shipping line, I would ask the buyer to request issuance of 3/3 OBL in supplier body and put to order of shipper on the consignee detail in BL body.

  21. I guess you mean supplier/seller in the last sentence and not buyer.
    If so seems then the Supplier/Seller would first have to pay the freight to the Carrier to get a Bs/L and why whould he do so?
    Donot quite see the problem though since the Bs/L is the evidence documenting cargo has been received onboard by the Carrier save there are many different types of Bs/L.
    The Buyers should be more concerned how to get the cargo released by the Carrier who will only deliver a cargo against an original of the Bs/L to ensure he’s delivering the cargo to the right party.
    Seems buyers are inexperienced or ill advised to agree such terms in the sales contract.

    1. Hi Leif, the person asking the question is the supplier.. He wants to know if the buyer arranges the shipment on an FOB basis and “payment against fax copy of BL” then buyer could arrange with shipping line to release cargo without OBL..