Generally speaking, free on board (FOB) contract is a type of contract of the international sale of goods in which the seller's duty is fulfilled by placing the goods on board a ship.
The term FOB have three variations which is first variation, classic FOB contract occurs when the seller put the goods on board while the buyer nominating a vessel. The second variation is FOB with additional service, whereby the seller makes the shipping and insurance arrangements for the buyer's account, with the seller nominating a suitable ship. While the last and most common form of FOB is the modern FOB, occurs with the buyer nominating the vessel and making the contract of carriage.
Looking into the advantages of an FOB contract offers to the buyer whereby the cost for FOB is lower. An FOB purchase "presumably" covers only the cost of goods at the FOB point. By nominating the ship, and presumably by contracting with the seller, the buyer could get a better deal. As for the seller, they will be benefited through the FOB contract at times when the carriage cost is high or likely to fluctuate because the buyer must bear the risk of changes in the cost of carriage.
However, there are also disadvantages to the buyer whereby there are burdensome duties imposes on the buyer especially the buyer who lack of information and expertise needed to perform these tasks himself. As for the seller, he must bear the full liability for the cost and safety of the goods until the point of their passing the ship's rail.
As a concluding remark, there are risks that both buyers and sellers have to consider before deciding into a FOB contract and take into account all the factors and evaluate the contract in terms of security and benefits.
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