FOB, short for Free on Board, is one of the most commonly used trade terms in international shipping. According to Incoterms 2020, FOB is applicable only to sea and inland waterway transport.
Under FOB terms:
The seller must deliver the goods to the port of shipment designated by the buyer and load them onto the vessel nominated by the buyer, within the time specified in the contract.
The seller is responsible for all costs and risks until the goods are loaded on board the vessel, including export customs clearance, duties, port charges, and loading fees.
Once the goods pass the ship’s rail (loaded on board), the risk transfers to the buyer. From that point onward, the buyer is responsible for ocean freight, insurance, and import customs clearance.
Seller’s Obligations
1. Deliver goods in accordance with the sales contract.
2. Handle export formalities and pay related costs (customs clearance, export duties, etc.).
3. Load the goods on board the vessel designated by the buyer.
4. Provide necessary shipping documents (e.g., bill of lading, packing list, invoice).
Buyer’s Obligations
1. Nominate the vessel and arrange sea freight.
2. Bear all risks and costs once the goods are loaded on board.
3.Handle import customs clearance and pay relevant duties and taxes.
4.Cover insurance costs during transport if required.
Risk Transfer
1.Transfer point: When the goods pass the ship’s rail at the port of shipment.
2.Seller’s responsibility: Before the goods cross the ship’s rail.
3.Buyer’s responsibility: After the goods cross the ship’s rail.
Advantages & Considerations
For Sellers
1. Lower risk and limited responsibility compared with other trade terms.
2. No obligation for ocean freight and import clearance.
For Buyers
1. Full control over carrier selection, route, and shipping schedule.
2. Potentially reduced transportation costs.
3. Flexible insurance arrangements.
Considerations
1. Buyers need sufficient logistics capability; otherwise, risks and costs may increase.
2.Sellers must ensure smooth coordination at the port to avoid additional charges.
Suitable Scenarios
When buyers and sellers have a trusted, long-term business relationship.
When buyers have established logistics networks and customs clearance capabilities.
When buyers want to reduce transportation costs and maintain control over shipping arrangements.
Conclusion
FOB remains one of the most widely adopted delivery terms in international trade. With clear responsibility allocation, reduced seller’s risks, and flexible buyer’s control, FOB is highly suitable for trusted trade relationships. Both parties should carefully evaluate their supply chain and logistics resources to ensure a cost-effective and risk-balanced cooperation.