What is the Meaning of Free on Board in Marine Insurance?

In the realm of marine insurance policies, a significant term to understand is "Free on Board" (FOB), which holds implications for the conditions and terms of your marine insurance coverage. Marine insurance plays a crucial role by providing protection against potential losses or damages that might occur during the transportation of goods.

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Concept of Free on Board

The concept of "Free on Board" or "freight on board" pertains to marine insurance and signifies that the responsibility of the seller extends until all goods have been successfully placed on the designated vessel as stipulated by the buyer. Essentially, it involves delivering goods at the seller's expense to a specified destination, as determined by the buyer.

In the context of marine insurance, the term "free" signifies that the seller bears the obligation of ensuring the successful delivery of goods to a designated location for transfer to the carrier.

Particularly within international shipments covered by marine insurance, contractual agreements involving international transportation often incorporate trade terms that delineate specifics such as the time and place of delivery, the point at which the buyer assumes liability from the seller, the party responsible for the cost of marine insurance and freight, and more.

For example, if Mr. X ships goods to Mr. Z under an FOB arrangement, Mr. Z is tasked with arranging insurance coverage for Mr. X. In the event of any loss during transit, Mr. Z would receive compensation from the insurance provider.

FOB is of particular importance to entities engaged in global business activities. It is especially relevant in contracts that involve valuable items susceptible to theft or loss. The critical aspect of FOB is its role in determining which party retains ownership of the goods while they are still in transit. Should the goods be lost or damaged, the marine insurance company of the owner would step in.

Different variations of FOB terms exist, and it is essential to understand them. In the case of FOB destination, the seller remains responsible until the buyer takes possession of the goods. Conversely, if the marine insurance specifically employs FOB origin, the buyer assumes ownership from the moment the goods originate. This makes the buyer accountable for freight and potential damages.

Clear comprehension of the specific FOB terms is crucial for all parties involved to determine responsibilities in unforeseen circumstances.

Example Scenario 1: Consider a scenario in which a pepper dealer purchases 20,000 tons of pepper from Company ABC in India, intending to sell the goods at a store in London. The purchase contract specifies "FOB destination, London, XYZ warehouse."

This indicates that Company ABC covers the expenses of loading and shipping the 20,000 tons from its Indian facility to the XYZ warehouse in London. The pepper becomes the dealer's property upon arrival in London. Consequently, if any loss occurs to the goods while they are in transit such as being lost, destroyed, or stolen Company ABC would still be accountable, as it retains ownership during transit.

In instances where the goods sustain damage or theft after reaching the XYZ warehouse, the responsibility falls on the buyer.

Example Scenario 2: Imagine Rajesh, a machinery seller based in Delhi, India, who previously entered into an agreement with a buyer located in New York. As per the agreement, Rajesh is obligated to provide goods to the buyer under FOB terms. Here, Rajesh covers all expenses related to transporting the goods to the Delhi port. The seller also handles customs clearance expenses in Mumbai to facilitate the goods' transportation via airlines or ships.

Importantly, the buyer assumes subsequent costs upon the goods' arrival at their destination. The buyer selects the shipping company or airline, and the seller arranges the shipment accordingly. The buyer bears the cost of freight to the shipping company or airline and takes steps to insure the consignment, covering the insurance expenses.

Conclusion

In summary, the concept of "Free on Board" (FOB) in marine insurance policies entails the seller's responsibility for goods until they are successfully placed on the designated vessel. This concept plays a pivotal role in international trade contracts and the determination of ownership and liability during transit.

Written By: PolicyBazaar - Updated: 01 September 2023

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Policybazaar for Business - Marine Insurance - Customer Reviews
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4.3/5
Based on 114 reviews
4.3
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Based on 114 reviews
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3.8 April 20, 2023
Anas
Great Experience
I recently purchased Marine insurance from Policybazaar for my shipping business and I must say I am thoroughly impressed with their service and coverage. From start to finish, the experience has been smooth and hassle-free.Thankyou.
Mizoram
4.3 April 03, 2023
Vaishnav
Provides Comprehensive Protection
When it comes to coverage, Marine insurance that i bought from PolicyBazaar has exceeded my expectations. It provides comprehensive protection for my cargo and vessels during transit, ensuring I can focus on my business operations with peace of mind. Thankyou.
Assam
4.3 March 17, 2023
Umang
Excellent Services
I highly recommend Marine insurance from PolicyBazaar website to anyone in the shipping or logistics industry. Their user-friendly website, comprehensive coverage, and excellent customer service make them stand out from the competition. With Policybazaar, I feel confident in navigating the high seas, knowing that my business is well-protected. Thank you, Policybazaar.
Chennai
4.3 February 28, 2023
Vishal
User Friendly Interface
The website's user-friendly interface made it easy to compare different plans and find the perfect fit for my business needs.Thanks
Gurugram
4.3 February 11, 2023
Parth
Prompt Services
I appreciate the transparency and honesty with which Policybazaar handled my claims. They were prompt in processing my claim and their claim settlement process was hassle-free.Thanks PolicyBazaar.
Noida
3.8 February 10, 2023
Rishabh
Exceeds Expectations
I recently had the pleasure of purchsing marine insurance from Policy bazaar website and I must say it has been an outstnding experience from start to finish. I am thrilled to share my positive customer review, as this truly exceeded my expectations. Thanks PB.
Jamshedpur
3.8 January 31, 2023
Arvind
Easy Navigation
The ease of navigating the Policy bazaar website and finding the right marine insurance policy was impressive. The website's user-friendly interface and intuitive design made it incredibly simple to compare various options, understand the coverage details and make an informed decision. I appreciated the transparency provided throughout the process. Thanks.
Ajmer
3.8 January 21, 2023
Vishal
Excellent Support
The customer service provided by Policy bazaar was decent. Their team was responsive, knowledgeable and went above and beyond to assist me at every step. Their professionalism and commitment to customer satisfaction were truly commendable.Thankyou.
Mumbai
4.3 January 11, 2023
Sanjeev Rathor
Efficient Process
When it came to claims processing, Policy bazaar demonstrated remarkable eficiency and effectivenes. I had an unfortunate incident during the coverage period and filing a claim was a breeze. The entire process was streamlined and their team guided me throuugh every necssary step, making it hassle-free. The promptness with which my claim was setled reflected their commitment to their customers' well-being and peace of mind. Thankyou.
Pune
3.8 January 01, 2023
Kunal
Comprehensive Coverage
I must mention the comprehensive coverage provided by the marine insurance policy I purchasd through Policy bazaar. It offered me the necesary protection and peace of mind. Thankyou PolicyBazaar.
Indore