FOB (Free on Board)

What Is FOB?

FOB (Free on Board) is an incoterm that requires the seller to clear the goods for export, deliver the goods to the ocean vessel, and place the goods on board. Cost and risk transfer from the seller to the buyer once the goods cross the ship’s rail.

FOB should only be used for ocean shipments that will be delivered directly from the seller’s premises to the vessel. FCA is a more suitable incoterm for LCL and other containerized shipments that will be delivered to a carrier at a CFS (Container Freight Station) or Container Yard.

It is ultimately up to the buyer and the seller to agree on each party's responsibility of cost and risk before the shipment begins.

What should buyers watch for with FOB?

With FOB, the buyer arranges and pays for the main ocean freight, and the seller covers costs up to the point the goods are loaded on board. Many buyers choose FOB when they want control of the ocean leg. Because risk passes to the buyer at that point, the buyer typically needs cargo insurance from there. Name the port of shipment clearly in the contract.

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