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FOB Incoterm: Definition & Responsibilities

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.

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Based on Latest Incoterms® 2020 Rules
Updated for Trade Practices
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modern minimalist infographic showing FOB Incoterm

Transport

Seller delivers goods to the port and loads them on board; buyer arranges the main carriage.

Insurance

Seller’s responsibility ends at loading; buyer secures insurance from that point onward.

Risk Transfer

Transfers once the goods pass the ship’s rail at the port of shipment.

What is the FOB Incoterm? ( Definition)

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.

Seller's Cost & Risk (Until Loading On Board) Risk Transfers at Loading Buyer's Cost & Risk (After Loading)
Seller's Responsibility Zone Costs Covered
Step 1

Goods Preparation

  • • Proper Packaging
  • • Accurate Documentation
  • • Goods Ready at Premises
Step 2

Port Delivery & Loading

  • • Transport Goods to Port
  • • Handle Export Clearance
  • • Load Goods on Vessel
Risk Transfer at Loading

Loading On Board

  • • Goods Cross Ship’s Rail
  • • Risk Transfers to Buyer
Buyer's Zone Cost & Risk After Loading

Main Carriage & Insurance

  • • Arrange Transport from Port
  • • Secure Insurance Coverage
  • • Manage Transit Risks

Import Clearance & Final Delivery

  • • Handle Import Documentation
  • • Pay Duties & Taxes
  • • Unload & Deliver Goods

Seller Pays For

  • Goods preparation & proper packaging
  • Transport to port & export clearance
  • Loading goods on board the vessel

Buyer Pays For

  • Main carriage & insurance from port of loading
  • Import clearance, duties & taxes
  • Additional transport & final delivery

Want to learn more?

Compare FOB with other Incoterms to understand the key differences in seller and buyer responsibilities.

FOB vs EXW

FOB Incoterm: Seller vs. Buyer Responsibilities

Understanding your obligations under FOB (Free On Board) terms

Seller's Key Obligations

Ensure goods are prepared for export, delivered to the port, cleared, and loaded on board.

Buyer's Key Obligations

Arrange and pay for main carriage, insurance, import clearance, and subsequent handling.

Responsibility Seller Buyer
Export Packing & Marking

Ensure goods are export-ready

Export Documentation

Invoice, packing list & clearance

Main Carriage

Transport from port

Insurance Coverage (Optional)

Buyer arranges insurance

Optional Extra
Import Clearance

Duties and taxes

Destination Handling

Unloading & delivery

Additional Costs

Extra fees & charges

What Happens if the Goods Are Damaged During Transport?

Important information about risk transfer and liability under FOB terms

Risk Transfer Point

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.

Insurance Protection

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.

Claim Process

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.

Required Documentation

  • Commercial Invoice, Packing List & Bill of Lading
  • Damage Report (if applicable)

Time Limitations

  • Report damage within 3 days of shipment (may vary with carrier and policy)
  • File claim within 30 days (subject to insurer's conditions)
Compare Incoterms

FOB vs CIF, DDP, DAP & EXW: Key Differences

Responsibility

FOB

DAP

CIF

DDP

EXW

Main Transport
Buyer arranges main carriage from port of loading
Seller delivers at destination
Seller to port of destination
Seller to final destination
Buyer arranges pickup at origin
Insurance
Buyer arranges insurance for main carriage
Not provided
Seller (Marine only)
Seller (optional)
Buyer responsible
Risk Transfer
At loading port (upon loading)
Upon delivery
At loading port
Upon delivery to buyer
Immediately upon pickup
Export Clearance
Seller
Seller
Seller
Seller
Buyer*
Import Clearance
Buyer
Buyer
Buyer
Seller
Buyer
Duties & Taxes
Buyer
Buyer
Buyer
Seller
Buyer
Typical Usage
Ideal for ocean shipments; seller's role ends at loading while buyer controls main carriage and insurance.
Ideal when the seller handles full door-to-door delivery.
Suitable for sea freight with seller-provided marine insurance.
Best when the seller manages door-to-door delivery with customs clearance.
Suitable when the buyer assumes all responsibilities from pickup at the seller’s premises.

When and why should you choose FOB over CIF, DDP or DAP (instead of EXW)?

What is the key difference between FOB and CIF?

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.

When should I choose FOB instead of DDP?

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.

What benefits does FOB offer for multimodal transport?

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.

How are customs responsibilities allocated under FOB?

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.

What additional insurance options are available under FOB?

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.

What are common pitfalls when using FOB terms?

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.

What documentation is required for a FOB shipment?

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.

How can disputes regarding FOB terms be resolved?

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.