Free On Board (FOB)
The seller delivers and risk passes when the goods are loaded on board the buyer's nominated vessel at the port of shipment; main freight and insurance are on the buyer. Sea/inland-waterway only.
Free On Board (FOB) means the seller delivers and risk passes when the goods are loaded on board the buyer's nominated vessel at the named port of shipment (placed on board). The seller handles export clearance and domestic costs up to loading; the buyer pays main freight, insurance, import clearance and duties. FOB is among the most familiar terms for Chinese exporters.
FOB is for sea and inland-waterway transport only. On the cost ladder it sits above EXW/FCA and below CFR/CIF (under FOB the buyer pays sea freight and insurance; under CFR the seller pays freight, the buyer insurance; under CIF the seller pays freight plus insurance). Key points: delivery/risk transfer is "on board," so risk during pre-loading storage at the terminal stays with the seller; since the seller does not insure the main carriage, the buyer should arrange its own cover. Common pitfall: container cargo is actually exchanged at the yard rather than over the rail, so ICC recommends FCA instead; also specify who bears loading-port THC and loading charges to avoid disputes over loading costs.
FAQ
- Under FOB, who buys marine insurance and who bears a loss at sea?
- Under FOB the seller does not insure the main carriage; the buyer should arrange its own cover. Risk passed to the buyer once the goods were on board, so loss or damage during the sea voyage is the buyer's — which is exactly why the buyer should have insurance in place before loading rather than shipping uninsured.
- Does an FOB price include origin THC and loading charges?
- FOB makes the seller responsible up to "on board," so loading-related charges at the origin port are in principle included, but the exact allocation of THC and terminal handling varies by trade lane and forwarder and is a frequent source of dispute. Itemize who bears each origin charge in the contract.
- Is insisting on FOB for container cargo risky?
- Yes. Containers are usually handed over at the yard, so between delivery to the terminal/carrier and actual loading the seller still bears risk, misaligned with operations. ICC recommends FCA for containers and multimodal, so risk transfers at yard handover.
Related terms
Sources: https://iccwbo.org/business-solutions/incoterms-rules/incoterms-2020/