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ACCA Applied Skills · Corporate and Business Law (Global) · Transportation documents and means of payment

Zenith Traders in Singapore agrees to sell machinery to Boreal Ltd in Canada on FOB Singapore port terms (Incoterms 2020). The machinery is loaded on board the vessel at Singapore without incident, but is damaged by a storm in mid-ocean. Boreal Ltd has not taken out any insurance. Which statement is correct?

Boreal Ltd bears the loss. Under FOB the seller delivers, and risk passes to the buyer, once the goods are loaded on board the vessel at the named port of shipment. The mid-ocean storm happened after loading, and FOB places no duty on the seller to insure.

  1. AZenith Traders bears the loss because risk passes only when the goods arrive at the Canadian port
  2. BBoreal Ltd bears the loss because risk passed to it when the goods were loaded on board the vesselCorrect
  3. CZenith Traders bears the loss because under FOB the seller must insure the goods to the destination
  4. DBoreal Ltd bears the loss only if it has taken delivery of the bill of lading from the carrier

Explanation

Under FOB (Incoterms 2020) the seller delivers when the goods are placed on board the vessel nominated by the buyer, and risk passes to the buyer at that point. The storm damage occurred afterwards, so Boreal Ltd bears it. The seller has no duty to insure under FOB, which is why option C is wrong; arrival at destination is relevant to terms such as DAP, not FOB.

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