The Risk Window FOB Creates for Containerized Cargo

Habit keeps FOB in use, but with containers the seller keeps bearing risk for a phase they no longer control. This is why the ICC recommends FCA.

The assumption FOB was built on

FOB was designed around break-bulk cargo. The seller brings goods to the quay and a crane lifts them straight onto the vessel. There is almost no gap between handover and loading.

That made "risk transfers on loading" a natural rule. The seller stood beside the cargo until the moment it went aboard, so bearing risk until then made sense.

Container logistics works differently

Here is how containerized cargo actually moves. The seller stuffs the container and delivers it to a terminal or container yard. That is where the goods pass to the carrier.

Loading on board happens days later. In between: internal terminal movement, waiting in the stacking area, assignment of loading sequence. The seller can neither observe nor influence any of it.

The problem window

From terminal receipt to loading on board. The seller has handed over the goods yet still carries the risk.

If a fire breaks out at the terminal during this period, if a container is damaged in the stack, if there is a crane accident, the loss falls on the seller. Even though the goods are already under the carrier's control.

What FCA fixes

FCA (Free Carrier) sets risk transfer at the moment of handover to the carrier. Deliver the container to the terminal, take the receipt, and risk passes to the buyer at that point.

The seller's span of control and span of risk now match. That is what makes FCA the right fit for containerized cargo.

FCA has another advantage: it works for any transport mode. Sea, air, road, multimodal. FOB is limited to sea and inland waterway.

So why does everyone still use FOB

The main reason is habit. FOB has been the default for decades. Counterparties request quotes on FOB terms, and bank staff are used to seeing it.

The second reason was a bill of lading problem. Under FCA the buyer contracts carriage, which made it difficult for the seller to obtain a bill of lading bearing an on-board notation. And that document is exactly what a letter of credit transaction requires.

Incoterms 2020 addressed this. FCA gained an optional on-board bill of lading provision: where the parties agree, the buyer instructs the carrier to issue a bill of lading with an on-board notation to the seller.

Free resource

CIF and FOB Practical Guide (PDF)

A comparison table of all eleven Incoterms organized by transport mode and risk transfer point, a breakdown of seller and buyer obligations under FOB and CIF, and a pre-presentation checklist for letter of credit documents with the applicable UCP 600 articles cited.

Download free → https://guild.tflowx.com/ko/post/96

CIF carries the same flaw

CIF also transfers risk on loading. With containerized cargo it opens exactly the same gap as FOB.

The corresponding term is CIP (Carriage and Insurance Paid To). Risk transfers on handover to the first carrier, and the seller pays carriage and insurance to the destination. Incoterms 2020 raised CIP's default insurance to Institute Cargo Clauses (A), broader than CIF's (C).

If you switch, check these

Define the delivery place precisely. Under FCA, loading obligations differ depending on whether the named place is the seller's premises or elsewhere. At the seller's premises, the seller loads. Anywhere else, the seller delivers without unloading.

Agree the bill of lading provision. If your letter of credit requires an on-board bill of lading, state in the contract that the Incoterms 2020 optional provision applies.

Discuss it with your counterparty first. For a partner unfamiliar with FCA, changing the term becomes a negotiation point. Be ready to explain why.