When it comes to shipping goods, there are a few important Incoterms you need to be familiar with.
In this article, we'll take a look at the differences between Free on Board (FOB) and Free Alongside Ship (FAS). It's easy to understand the distinctions between types of agreements by determining how much liability the buyer and supplier hold under each one.
Although the difference is minor, both of these terms have a significant impact on the cost of shipping products and can affect your bottom line.
We'll break down the key differences between these two Incoterms and help you decide which one is right for your business.
What is Free on Board (FOB)?
Free on Board (FOB) is an Incoterm that indicates who is responsible for paying the costs of shipping goods.
If the buyer is responsible for the cost of shipping, then the goods are considered "FOB destination" or "FOB shipping point." This means that the buyer is liable for any damage that occurs during shipping.
If the seller is responsible for the cost of shipping, then the goods are considered "FOB origin." This means that the seller pays for all transportation costs and assumes responsibility for any damage that occurs during shipping.
What is Free Alongside Ship (FAS)?
Free Alongside Ship (FAS) is a term used in international trade to describe a pricing agreement whereby the seller is responsible for delivering the goods to the port of shipment, at which point the buyer takes over responsibility for transportation costs.
Under this pricing agreement, the buyer is responsible for any costs incurred after the goods have been delivered to the port, including port fees, loading, and unloading costs.
Key Differences Between FOB vs FAS
There are three main differences between FOB and FAS. The:
- Point of risk transfer to the buyer
- Primary use
- Required documents
FOB vs FAS: Point of Risk Transfer
Under a FOB contract, ownership of the goods transfers from the seller to the buyer when the goods are loaded on the vessel at the port of origin. The buyer assumes all risks and costs associated with transportation from that point onwards.
Under a FAS contract, ownership of the goods transfers when the seller delivers them to the buyer alongside the vessel at the port of destination. The buyer assumes all risks and costs associated with transportation from that point onwards.
FOB vs FAS: Primary Use
When shipping containerized goods, FOB is often the best choice, as it shifts liability and responsibility to the buyer once the container is sealed at origin. This means that if there are any problems with the cargo, the buyer is responsible for dealing with them, rather than the seller.
FAS, on the other hand, is typically used when shipping bulk commodities that cannot be loaded into a shipping container. Given the flexibility of non-containerized goods, FAS is typically used since the buyer can determine the type of vessel and the most efficient way to load the goods onto the vessel.
FOB vs FAS: Required Documents
When shipping FOB, the seller has to provide the following documents to the buyer:
- Bill of Lading
- Commercial Invoice
- Insurance Certificate
- Packing List
- Export License
On the other hand, when shipping FAS, the seller only needs to provide the:
- Bill of Lading
- Packing list
When to Use FOB vs FAS?
Generally speaking, FOB is a better choice for buyers, as it puts the responsibility for the goods on the seller. FOB also typically results in a lower shipping cost for the buyer, as it carries less risk for them when loading the goods to the ship.
FAS, on the other hand, is usually a better choice for sellers. This is because FAS puts the responsibility for the goods on the buyer once they're loaded onto the ship.
Of course, there are always exceptions to the rule. If you're shipping high-value items, for example, you may want to consider FOB to make sure that your goods are properly insured. And if you're shipping items that are difficult to containerize, like vehicles or large machinery, FAS may be the better choice.
Minor Difference, Major Impact
While the difference between these two terms may seem small, it can actually have a big impact on your shipping costs.
Ultimately, the choice between FOB and FAS comes down to a matter of risk. Who is willing to assume the risk of damage or loss during shipping? The answer to that question will help you determine which incoterm is right for your shipment.
When in doubt, it's best to consult with an expert to help you choose the right Incoterm for your shipment. They can help you weigh the risks and benefits of each option and make the best choice for your business.