FOB - Free on Board

What is the FOB Incoterm (Free On Board)

FOB is an Incoterm that is exclusive to ocean freight shipping. Under this Incoterm, the seller is responsible for loading the goods onto the ship nominated by the buyer and bears the costs and risks until the goods are loaded. Only when the cargo is loaded on board the vessel does the risk transfer to the buyer.

Because there is a specific requirement for the seller to load the goods onto the vessel, the FOB is not suitable for containerized cargo that is directed to a terminal before it goes to the ship. It is quite common for sellers to use FOB for containerized cargo, but this is not a correct use of the Incoterm.

When the FOB is used for containerized cargo, the seller is put at a disadvantage in case the goods get damaged or lost during transport from the terminal to loading. There are also instances that it becomes difficult, if not impossible, to pinpoint the liable party.

For shipping containerized cargo, the FCA is better to use than the FOB Incoterm.

Further, the FOB Incoterm does not require neither the buyer nor the seller to obtain insurance. But it is common practice for one or both parties to cover their responsibilities.

The Seller’s Obligations Under the FOB Incoterm

• Deliver the goods and the required documents
• Checking, packaging, and marking
• Bear all risks of loss of or damage to the goods until they have been loaded on board the vessel
• Provide the buyer with usual proof that the goods have been delivered
• Customs handling fees at origin
• Export requirements
• Shoulder origin charges
• No obligation to make a contract of carriage
• No obligation to make a contract of insurance.

The Buyer’s Obligations Under the FOB Incoterm

• Pay for the goods
• Bear all risks of loss of or damage to the goods from the time they have been loaded onto the vessel
• Contract of carriage
• Notify the seller about transport-related security requirements, the name of the vessel, the loading point, and selected delivery date
• Handle international freight
• Destination charges and customs handling fees at destination
• Import clearance
• Duties and taxes
• No obligation to obtain insurance.

What Does the Seller Pay for Under the FOB Incoterm?

• All costs relating to the goods until they have been delivered
• Costs of providing usual proof
• Duties and taxes

What Does the Buyer Pay for Under the FOB Incoterm?

• All costs relating to the goods from the time they have been delivered
• Duties and taxes
• Costs incurred in case of failure to give notice to the seller or the failure of the vessel to take the goods.

Learn more about which Incoterm is best for your shipment by downloading our free ebook on How to Choose the Best Incoterm or get in touch with our import and export agents.