Incoterms Explained: Free on Board (FOB) (2024)

FAQs

What does the term FOB free on board include? ›

Free on board, often abbreviated as “F.O.B.,” applies to the sale of goods and indicates that purchased property will be placed on board a vessel for shipment at a designated place without expense to the buyer for packing, potage, cartage, etc.

FOB is a shipping term that stands for “free on board.” If a shipment is designated FOB (the seller's location), then as soon as the shipment of goods leaves the seller's warehouse, the seller records the sale as complete. The buyer owns the product en route to its warehouse and must pay any delivery charges.

Free on Board, or FOB is an Incoterm, which means the seller is responsible for loading the purchased cargo onto the ship, and all costs associated. The point the goods are safe aboard the vessel, the risk transfers to the buyer, who assumes the responsibility of the remainder of the transport.

FOB stands for “free on board” or “freight on board” and is a designation that is used to indicate when liability and ownership of goods is transferred from a seller to a buyer. Free on Board: Free on board indicates whether the seller or the buyer is liable for goods that are damaged or destroyed during shipping.

Freight on board, also known as free on board, refers to a set of Incoterms that govern who owns and pays for a shipment when traveling overseas. Although its original definition was used exclusively for seafaring transport, modern use of the term can be applied to all shipment modes of transit.

FOB Origin, Freight Collect: The buyer pays for freight and shipping costs and assumes full responsibility for the cargo. FOB Origin, Freight Prepaid, & Charged Back: The seller does not pay the cost of shipping, but instead adds the freight costs to the invoice sent to the buyer.

FOB freight collect and allowed specifies that the buyer must pay for the freight transportation costs. However, the buyer deducts the cost from the seller's invoice. The seller is responsible for the goods because the seller still owns the goods during transit.

In FOB shipping point, the seller pays for the shipping costs to bring the goods to the shipping point. The buyer is then responsible for paying the shipping costs to take possession of the goods.

A buyer can save money by using FOB Destination since the seller assumes costs and liability for the transportation. However, the disadvantage for the buyer is the lack of control over the shipment including shipment company, route and delivery time.

The main difference between CIF and FOB is the party that is responsible for the goods while they are in transit. With a CIF agreement, the seller is liable for the goods during transit, and with a FOB, the buyer is liable for the goods during transit. Other than that, there is not a major difference between the two.

Does FOB mean buyer pays freight? ›

In FOB shipping point agreements, the seller pays all transportation costs and fees to get the goods to the port of origin. Once the goods are at the point of origin and on the transportation vessel, the buyer is financially responsible for costs to transport the goods such as customs, taxes, and fees.

Indicating "FOB port" means that the seller pays for transportation of the goods to the port of shipment, plus loading costs. The buyer pays the cost of marine freight transport, insurance, unloading, and transportation from the arrival port to the final destination.

Most buyers choose FOB because it's arguably the most affordable or cost-effective option. Under the FOB terms, buyers do not usually pay the higher fees that CIF protection plans incur. With Free On Board, the buyer has more flexibility and control of the terms, the cost, freight planning, and more.

There are two types of FOB, which are FOB destination and FOB shipping point. The type of FOB to be used is typically designated in a customer's purchase order, and is also stated on the supplier's invoice to the customer.

The buyer is responsible for everything, including freight and shipping costs, as well as liability for the cargo.

Under the Free Carrier, or FCA Incoterm, the buyer is responsible for all freight costs. Find more information about Incoterms here.

Free on Board means the seller is responsible for the product only until it is loaded on board a shipping a vessel, at which point the buyer is responsible. With CFR, the seller must arrange and pay all costs to ship the product to a destination port, at which point the buyer becomes responsible.

Examples of FOBs in the Usage

FOB shipping destination, freight prepaid by the seller – The seller pays all the cost, and the buyer owns responsibility only after receiving the shipment. The buyer will not pay any shipping costs.

One of the main disadvantages for seller under FOB terms is that the exporter does not have any control over main carriage, import clearance and on carriage of goods to final destination. The tracking of shipping details is depended with the buyer as he undertakes main carriage and on carriage contract.

FOB means risk of loss transfers when the shipment is loaded on the vessel. It does not mean anything else. For this reason, the language provided by the buyer simply did not make sense. In fact, there is NO shipping term that provides for transfer of risk of loss under these terms.

What is Free On Board cost? ›

Definition: Free On Board (FOB) indicates that the supplier pays the shipping costs that usually also include the insurance costs from the point of production to a specified destination, at which point the buyer takes responsibility.

Under FOB shipping terms, the seller is responsible for all costs involved in the process up until the goods are on a vessel at the designated port. Once goods have been loaded onto the vessel the buyer is responsible for any costs and risks involved in the onward shipment.

Free on Board (FOB) is a term used to indicate when the ownership of goods transfers from buyer to seller and who is liable for goods damaged or destroyed during shipping. "FOB Origin" means the buyer assumes all risk once the seller ships the product.

FOB Value = Ex-Factory Price + Other Costs

(b) Other Costs in the calculation of the FOB value shall refer to the costs incurred in placing the goods in the ship for export, including but not limited to, domestic transport costs, storage and warehousing, port handling, brokerage fees, service charges, et cetera.

The seller had agreed to despatch goods free on board.

F.O.B. (free on board)—Indicates that the selling price of goods includes transportation costs to the specific F.O.B. place named in the contract. The seller pays the expenses and carries the risk of loss to the F.O.B. place named [UCC 2-319(1)].

FOB Value = Ex-Factory Price + Other Costs

(b) Other Costs in the calculation of the FOB value shall refer to the costs incurred in placing the goods in the ship for export, including but not limited to, domestic transport costs, storage and warehousing, port handling, brokerage fees, service charges, et cetera.

Abbreviation for free on board; the point when ownership of goods passes to the buyer; FOB shipping point (or factory) means the buyer pays shipping costs and accepts ownership of goods when the seller transfers goods to carrier; FOB destination means the seller pays shipping costs and buyer accepts ownership of goods ...

If goods are shipped FOB shipping point, transportation costs are paid by the buyer and title passes when the carrier takes possession of the goods. These goods are part of the buyer's inventory while in transit.

“Free on board” is what FOB stands for. It is a designation which indicated that the liability and ownership of the goods have been transferred from a seller to a buyer. This means that if the goods get damaged or destroyed during the shipping, the seller is not liable.

Who pays for shipping with FOB? ›

With FOB shipping point, the buyer pays for shipping costs, in addition to any damage during shipping. The buyer is the one who would file a claim for damages if needed, as the buyer holds the title and ownership of the goods.

In FOB, the seller is responsible from the point of origin i.e. maintaining goods and transporting them till the delivery point. The loading of goods at the destination port is done by the seller. The processing responsibility after the delivery point rests with the buyer.

Most buyers choose FOB because it's arguably the most affordable or cost-effective option. Under the FOB terms, buyers do not usually pay the higher fees that CIF protection plans incur. With Free On Board, the buyer has more flexibility and control of the terms, the cost, freight planning, and more.

Under FOB contracts, the buyer is responsible for shipping and other costs, as well as insurance as soon as the goods are loaded onto the vessel and during the voyage.

For FOB destination, the seller retains ownership of the goods and is responsible for replacing damaged or lost items until the point where the goods have reached their final destination.