Incoterms 2020
FOB Incoterm (Free on Board) – Meaning, Risk & Costs
FOB (Free on Board) under Incoterms 2020: where risk transfers, who pays for carriage, and seller and buyer obligations.
- Rule
- FOB – Free on Board (named port of shipment)
- Transport mode
- Sea and Inland Waterway
- Insurance required
- No
- Export clearance
- Seller
- Import clearance
- Buyer
- Main carriage
- Buyer
Free on Board (FOB) is one of the most commonly used Incoterms for sea freight. The seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment. Risk transfers when goods are on board.
FOB is intended for non-containerized sea freight. For containerized cargo, FCA is more appropriate since goods are typically delivered to a terminal before the ship arrives.
In practice, FOB is widely used even for containers, but parties should be aware that risk technically passes when goods are on board, not when delivered to the terminal.
When risk transfers under FOB
When goods pass the ship's rail (on board)
When costs transfer under FOB
Once goods are loaded on board vessel
Seller obligations under FOB
- Deliver goods on board the vessel
- Clear goods for export
- Pay loading costs onto vessel
- Provide proof of delivery (usually B/L)
- Bear risks until goods are on board
Buyer obligations under FOB
- Nominate vessel and notify seller
- Contract and pay for ocean freight
- Handle import customs clearance
- Pay import duties and taxes
- Bear risks once goods on board
Who is responsible for what under FOB
- Export customs clearance: Seller
- Import customs clearance: Buyer
- Loading: Seller
- Main carriage: Buyer
- Unloading: Buyer
- Delivery to destination: Buyer
Common uses of FOB
- Sea freight shipments
- Bulk commodities
- When buyer has freight contracts
- International trade standard
FOB is best for
- Traditional sea freight
- When buyer arranges shipping
- Commodity trades
Risks to watch with FOB
- Only for sea/inland waterway
- Not ideal for containers (use FCA)
- Loading delays affect seller
More in this directory
- CFR Incoterm (Cost and Freight) – Meaning, Risk & Costs
- CIF Incoterm (Cost, Insurance and Freight) – Meaning, Risk & Costs
- CIP Incoterm (Carriage and Insurance Paid To) – Meaning, Risk & Costs
- CPT Incoterm (Carriage Paid To) – Meaning, Risk & Costs
- DAP Incoterm (Delivered at Place) – Meaning, Risk & Costs
- DDP Incoterm (Delivered Duty Paid) – Meaning, Risk & Costs
Frequently asked questions
What does FOB mean in shipping?
FOB stands for Free on Board. Free on Board (FOB) is one of the most commonly used Incoterms for sea freight.
When does risk transfer under FOB?
When goods pass the ship's rail (on board)
Who pays for main carriage under FOB?
The buyer pays for main carriage under FOB.
Who handles customs clearance under FOB?
Under FOB, the seller handles export clearance and the buyer handles import clearance.
Is insurance required under FOB?
No. FOB does not require either party to buy insurance, though either may choose to arrange it.