Can a Beneficiary Be the Charterer Under FOB?

Intro

FOB is one of the most familiar trade terms in Incoterms® 2020. By the book, it’s always the buyer who arranges and pays for the vessel. But trade practice often colors outside the lines. A reader recently asked whether it’s possible for the beneficiary (seller) to be the charterer under an FOB sale. Let’s unpack this scenario.

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Question

Dear Mr. Old Man,

Greetings.

I would like to seek your opinion on the following scenario.

I came across a transaction today where Charter Party Bills of Lading are acceptable and trade terms are FOB. In the Charter Party BL, I noticed the beneficiary was shown as the charterer.

Usually, under FOB shipment terms, it is the applicant who is responsible for booking/chartering the vessel.

Is this possible under FOB terms where the beneficiary is the charterer? (Not asking from a discrepancy point of view, but just for knowledge’s sake).

Thanks and best regards,

Priya

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Answer

Dear Priya,

Thank you for your interesting question. You are correct that this is not a discrepancy under the LC rules, but it’s worth clarifying how this works in practice.

Under FOB (Incoterms® 2020), the buyer (applicant) is normally responsible for contracting carriage and bearing freight costs. The seller’s (beneficiary’s) obligation is to deliver the goods on board the vessel at the named port of shipment.

However, in practice, the parties may agree otherwise. For example, the seller may charter a vessel or arrange the shipment for the buyer’s account, even though the sale contract says “FOB.” This might happen because the seller has better access to vessels, can negotiate better rates, or simply for convenience. In such a case, the seller (beneficiary) becomes the charterer and may appear as such on a Charter Party Bill of Lading.

So yes, it is entirely possible for the beneficiary to be the charterer under FOB terms—not because Incoterms® 2020 defines different types of FOB, but because the commercial arrangement between buyer and seller allows it.

Conclusion:

FOB by definition places carriage on the buyer’s side. But in the real world, sellers sometimes step into that role, chartering vessels on behalf of the buyer. When that happens, the Charter Party BL may indeed show the beneficiary as charterer—without it being a problem under the LC.

Kind regards,

Mr. Old Man