Comprehensive guide to understanding Free On Board (FOB) Incoterm: roles, responsibilities, and the transfer of risk once goods are loaded on board at the designated port.
Seller delivers goods to the port and loads them on board; buyer arranges the main carriage.
Seller’s responsibility ends at loading; buyer secures insurance from that point onward.
Transfers once the goods pass the ship’s rail at the port of shipment.
FOB means the seller delivers the goods on board the vessel at the designated port, transferring risk to the buyer once the goods cross the ship’s rail.
FOB (Free On Board) is an international trade term in which the seller’s obligation is to deliver the goods on board the vessel at the specified port of shipment. The seller is responsible for export clearance and for loading the goods onto the vessel. Once the goods cross the ship’s rail, risk and responsibility are transferred to the buyer, who then assumes all subsequent costs, including main carriage, insurance, and import procedures.
Compare FOB with other Incoterms to understand the key differences in seller and buyer responsibilities.
Understanding your obligations under FOB (Free On Board) terms
Ensure goods are prepared for export, delivered to the port, cleared, and loaded on board.
Arrange and pay for main carriage, insurance, import clearance, and subsequent handling.
| Responsibility | Seller | Buyer |
|---|---|---|
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Export Packing & Marking
Ensure goods are export-ready Seller must properly pack and mark the goods for export, ensuring they meet shipping standards. |
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Export Documentation
Invoice, packing list & clearance Seller provides the commercial invoice, packing list, and arranges export clearance necessary for loading. |
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Main Carriage
Transport from port Buyer arranges and pays for the transport of goods from the port of shipment to the final destination. |
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Insurance Coverage (Optional)
Buyer arranges insurance Seller does not provide insurance. Buyer should secure coverage from the point the goods are loaded on board. |
Optional Extra | |
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Import Clearance
Duties and taxes Buyer is responsible for all import duties, taxes, and customs clearance procedures at the destination. |
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Destination Handling
Unloading & delivery Buyer bears all costs related to unloading and final delivery at the destination. |
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Additional Costs
Extra fees & charges Any extra charges incurred beyond the seller’s FOB obligations. |
Important information about risk transfer and liability under FOB terms
Under FOB, risk transfers to the buyer once the goods are loaded on board the vessel at the port of shipment. It is crucial that the seller follows proper loading procedures to minimize potential damage.
Under FOB terms, the seller’s responsibility ends once the goods are loaded. Any damage incurred during the main carriage is the buyer’s responsibility, so appropriate insurance should be secured by the buyer.
Once the goods are loaded, the buyer assumes all risks. Any claims for damage during transit should be filed by the buyer with their insurance provider.
Under FOB, the seller’s responsibility ends when the goods are loaded on board the vessel, transferring risk to the buyer at that moment. In contrast, under CIF the seller arranges sea transport and provides insurance until the port of destination.
Choose FOB when you prefer the seller’s obligation to be limited to delivering and loading the goods at the port, giving you control over the main carriage, insurance, and import processes. With DDP, the seller manages the entire door-to-door delivery.
FOB is advantageous if you want to select and negotiate with your own carriers for the main carriage after the goods are loaded. It offers flexibility but requires you to assume risks from the moment of loading.
Under FOB, the seller is responsible for export clearance and loading the goods on board the vessel. The buyer then handles import customs procedures, including clearance, duties, and taxes.
Since the seller’s responsibility ends once the goods are loaded, FOB requires the buyer to secure comprehensive insurance covering the main carriage and any subsequent transport risks.
Common pitfalls include underestimating the risk transfer at loading, failing to secure adequate insurance for the main carriage, and miscommunication regarding the condition of the goods at the time of loading.
Typically, the seller provides a commercial invoice, packing list, and a bill of lading as evidence that the goods have been loaded. The buyer is responsible for arranging additional import documentation.
Disputes under FOB terms typically focus on the condition of the goods at loading and discrepancies in the bill of lading. Such issues are usually resolved through negotiation, mediation, or arbitration as stipulated in the contract.