What is FOB?
FOB, short for Free On Board, is one of the eleven Incoterms® 2020 rules and one of the most quoted terms in trade with Asia. The seller clears the goods for export and loads them on board the vessel nominated by the buyer at the named port of shipment, for example “FOB Shanghai, Incoterms 2020”. From that moment the buyer pays the sea transport and carries the risk.
FOB is for sea and inland waterway transport only. Supplier price lists often say FOB, so it is the price most importers start from when they calculate landed cost.
Core principle: Risk passes when the goods are on board the ship at the port of loading.
Who does what under FOB
| Task | Seller | Buyer |
|---|---|---|
| Export clearance | ✓ | |
| Transport to the port and loading on board | ✓ | |
| Booking and paying sea transport | ✓ | |
| Insurance | Recommended | |
| Import clearance, duty and import VAT | ✓ | |
| Risk passes | When the goods are on board the vessel | |
FOB and container shipments
Containers are handed over earlier
A full container is usually delivered to the terminal days before it is loaded on the ship. Between gate-in and loading, the goods are out of the seller’s hands but the risk is still the seller’s.
Watch out for: The ICC says FOB is not appropriate for containers handed over at a terminal and recommends FCA instead. In practice FOB is still widely used, so agree clearly who pays terminal handling charges at the port of loading.
Port charges
Terminal handling and documentation fees at origin are a common source of disputes. Write in the quote whether they are included.
Example: A German sportswear brand gets a quote of USD 6.20 per unit FOB Ningbo for 8,000 units. To compare it with a DDP quote, the brand adds sea transport, insurance, EU customs duty, import VAT (which it can reclaim), port fees in Hamburg and delivery to its warehouse.
FOB vs other terms
- FOB vs FCA: FCA works for every mode and matches the real handover for containers. FOB only fits when goods are really loaded by the seller on a ship.
- FOB vs CIF: under CIF the seller also pays sea transport and minimum insurance to the destination port, but risk still passes on board at origin.
- “FOB destination”: a US domestic shipping term, not an Incoterm. In international contracts always add “Incoterms 2020”.
Frequently asked questions
When does risk pass under FOB?
When the goods are on board the vessel at the named port of shipment.
Who pays sea transport under FOB?
The buyer, who books the vessel and also pays insurance, import duty and taxes.
Can FOB be used for air shipments?
No. FOB is only for sea and inland waterway transport. For air or road shipments use FCA.
Is an FOB price what I actually pay per unit?
No. The landed cost adds transport, insurance, duty, port charges and delivery to the FOB price.
