What is FOB (Free on Board)?

Free on Board (FOB) is an Incoterm used to indicate whether the seller or the buyer is liable for goods that are damaged or destroyed during shipping. "FOB shipping point" or "FOB origin" means the buyer is at risk once the seller ships the product. The purchaser pays the shipping cost from the factory and is responsible if the goods are damaged while in transit. "FOB destination" means the seller retains the risk of loss until the goods reach the buyer.

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Key takeaways:

The seller (consignor) is responsible for transportation of the goods to the port of shipment and the cost of loading.

The buyer (consignee) pays the costs of ocean freight, insurance, unloading, and transportation from the arrival port to the final destination.

The seller passes the risk to the buyer when the goods are loaded at the originating port.

FOB is only used in non-containerized sea freight or inland waterway transport.

Shippers and carriers need to understand FOB designations in damage situations. Some receiving docks will refuse delivery of obviously damaged goods, rather than accept with a damage notation for future claim against the carrier.

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Seller's obligations under the FOB Incoterm:

Goods, commercial invoice and documentation

Export packaging and marking

Export licenses and customs formalities

Pre-carriage and delivery

Loading charges

Delivery onboard vessel at named port of shipment

Proof of delivery

Cost of pre-shipment inspection

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Buyer's obligations under the FOB Incoterm:

Payment for goods as specified in sales contract

Main carriage

Discharge and onward carriage

Import formalities and duties

Cost of pre-shipment inspection (for import clearance)

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The difference between CIF (Cost, Insurance, and Freight) and FOB (Free on Board):

The main difference between CIF and FOB is the party that is responsible for the goods while they are in transit. With a CIF agreement, the seller is liable for the goods during transit, and with a FOB, the buyer is liable for the goods during transit.

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The differences between FAS (Free alongside ship) and FOB (Free on Board):

In ex works, the buyer is responsible for the goods from the factory, mill, plant or warehouse, whereas in FCA, the seller delivers the export approved goods to the carrier at the stated location according to the terms and conditions agreed upon by both the seller and the buyer.

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Notes:

If the terms include the phrase "FOB origin, freight collect," the buyer bears the responsibility of the goods being shipped and is responsible for freight charges. If the terms include "FOB origin, freight prepaid," the buyer of goods assumes the responsibility of goods at the point of origin, and the seller pays the cost of shipping.