The “Trap” of FOB Terms: Who Should Pay for Destination Port Surcharges?

In international trade, FOB (Free On Board) is a popular term among Chinese exporters. It seems simple and clear: the seller bears all costs and risks until the goods reach the port of shipment and are loaded onto the ship; once the goods cross the ship’s rail, responsibility and risk transfer to the buyer.

However, it is precisely this “clear” division that makes many exporters complacent, ultimately leading to unexpected disputes and cost traps at the destination port, even resulting in losing both goods and payment.

I. The Core Trap: Who Should Bear the Destination Port Surcharges?

Theoretically, according to the Incoterms 2020, all costs at the destination port, including unloading fees, terminal handling fees, demurrage fees, and container demurrage fees, should be borne by the buyer (consignee).

But here’s the problem: Once the goods arrive at the destination port, if the buyer refuses or delays taking delivery for various reasons (such as market changes, funding issues, incomplete customs documents), a series of hefty surcharges will be incurred. At this point, a fatal trap emerges:

The shipping company and freight forwarder’s primary target for accountability is the “shipper” who signed the transportation contract with them—that is, you—the Chinese exporter!

The logical chain is as follows:

Under FOB terms, although the foreign buyer designates the freight forwarder and pays the ocean freight,

you (the shipper) are still the “Shipper” on the bill of lading, and you have a de facto transportation contract with the shipping company/freight forwarder.

When no one takes delivery at the destination port, resulting in charges, the shipping company will first seek accountability from its cooperating agent at the port of origin. The freight forwarder at the port of origin, to protect itself, will demand that you, the “Shipper,” assume responsibility; otherwise, they will withhold your export declaration forms, tax refund forms, and other crucial documents, and may even seize other goods you intend to export in the future.

Final Result: To avoid greater losses (such as goods being auctioned off or tax refunds being impossible), you may be forced to advance high destination port charges that should be borne by the buyer.

II. Besides Abandonment, What Other Common Traps Are There?

**** *Rogue Charges by Designated Freight Forwarders*

Trap Description: The freight forwarder designated by the overseas buyer (referred to as the “designated freight forwarder”) may charge you exorbitant “handling fees,” “document fees,” “booking fees,” etc., at the port of origin. Since you have no direct contractual relationship with them, and they are subordinate to the overseas buyer, you are in a very passive position during negotiations.

*** *High Unpacking/Handling Fees at the Destination Port

Trap Description: After the goods arrive at the port, the buyer may claim that the THC (Terminal Handling Charge) or other fees at the destination port are abnormally high, using this as an excuse to pressure you into lowering the price, threatening to abandon the goods if you don’t comply. Because you are located overseas, it is difficult for you to verify the authenticity of these fees.

Risk of Loss of Control

Trap Description: You lose control over the transportation process. The designated freight forwarder may arbitrarily arrange shipping schedules, change shipping companies, or even issue problematic bills of lading without your confirmation, affecting your secure receipt of payment.

III. Defense Strategies: How to Avoid FOB Traps and Protect Your Interests?

1. The Contract is the First Line of Defense: The More Detailed, the Better

Clearly Define Cost Boundaries: In the sales contract, in addition to specifying the trade term as FOB, supplementary clauses should be added, such as:

“All destination port charges, including but not limited to demurrage, detention, and storage fees, shall be borne by the buyer. If the above charges are incurred due to the buyer’s fault, the buyer shall fully compensate the seller for all losses and related expenses suffered as a result.”

Agree on Liability for Abandonment: Clearly stipulate that if the buyer abandons the goods, the payments already made will not be refunded, and the buyer has the right to dispose of the goods at their own discretion (resale or destruction), with all consequences and costs borne by the buyer.

2. Maintain Control of Key Documents: Safeguard Your Lifeline

Insist on Holding and Verifying Bill of Lading Copies: Always obtain a copy of the bill of lading from the designated freight forwarder and carefully verify all information for accuracy.

Strive for a Bill of Lading with You as the Shipper: This is of paramount importance! Ensure the Shipper on the bill of lading is your company, not the foreign buyer or its agent. This is your proof of title and the basis for controlling the goods and negotiating.

Release Documents Upon Payment: Never release the original bill of lading or telex release order to the buyer before receiving full payment. This is an ironclad rule of international trade.

3. Careful Selection and Communication: Maintain the Initiative

Conduct Background Checks on the Designated Freight Forwarder: If possible, investigate the reputation of the buyer’s designated freight forwarder.

Confirm Fees with the Designated Freight Forwarder: Before proceeding, request written confirmation from the designated freight forwarder of all fees charged to you at the port of shipment. If any fees are unreasonable, firmly raise objections and notify the foreign buyer for coordination.

Purchase Credit Insurance: For new or unreliable clients, export credit insurance can effectively mitigate the risk of losing both goods and money due to buyer bankruptcy or refusal to accept goods.

4. Consider Alternatives

Try FCA: If suitable, consider using the FCA (Free Carrier) term. You only need to deliver the goods to the buyer’s designated carrier at the specified location. This provides a clearer division of responsibility and risk, avoiding potential overcharging at the port of shipment.

Conclusion: FOB is a good term, but it’s not a “one-size-fits-all” solution. It’s a double-edged sword, offering convenience while also harboring hidden dangers.

Remember: Under FOB terms, your risk doesn’t end when the goods cross the ship’s rail. Only through rigorous contracts, strict control of key documents, and prudent operations can you avoid this “trap” and ensure your profits are safely secured.