What is FOB?
FOB · Free On Board
The seller delivers the goods on board the vessel at the named load port and clears them for export. Risk and cost transfer to the buyer once the cargo is loaded, so the buyer arranges and pays for ocean freight and insurance.
Key points
- Risk and cost both pass to the buyer the moment the goods are on board.
- The seller clears for export — which is why FOB works where the buyer could not.
- The buyer nominates the vessel, and pays for nominating it badly.
At a glance
| Who pays freight | Buyer |
|---|---|
| Who insures | Buyer, or nobody |
| Risk transfers | On board at the load port |
| Export clearance | Seller |
| Import clearance | Buyer |
| Best for | Buyers with their own freight arrangements |
What FOB actually covers
FOB — Free On Board — is an Incoterms rule for sea and inland waterway transport. The seller brings the cargo to the named port of loading, clears it for export, and gets it on board the vessel the buyer has nominated. At the moment the goods are on board, both cost and risk pass to the buyer.
The named port matters as much as the letters. “FOB Jebel Ali” and “FOB Bandar Abbas” describe different obligations, different costs and different risks. A contract that says only “FOB” has not specified anything usable.
What the buyer takes on
From loading onwards the buyer arranges and pays for ocean freight, marine insurance, discharge, import clearance and duties. The buyer also nominates the vessel, which is the part inexperienced buyers underestimate: nominating late, or nominating a vessel the load port cannot accommodate, creates delay the buyer usually pays for.
Because the buyer controls the freight, FOB suits buyers with their own shipping arrangements or a regular trade lane. A buyer without freight capability is generally better served by CFR or CIF.
Where FOB goes wrong
The two recurring problems are laytime and export clearance. If the vessel arrives outside the agreed laycan, or loading runs beyond the agreed laytime, demurrage accrues — and who pays depends on terms the contract must set out explicitly.
Export clearance sits with the seller under FOB, which is why FOB works in jurisdictions where a foreign buyer could not obtain export documentation. That is the practical reason FOB is common in commodity trade and EXW is not.
Frequently asked questions
- Who pays for freight under FOB?
- The buyer. The seller’s cost obligation ends once the goods are on board at the named load port. The buyer arranges and pays for ocean freight, insurance and everything after.
- When does risk transfer under FOB?
- When the goods are on board the vessel at the named port of loading. Loss or damage before that point is the seller’s; after it, the buyer’s, whether or not the buyer has insured the cargo.
- Is FOB suitable for containers?
- Not strictly. Incoterms recommends FCA for containerised cargo, because containers are handed over at a terminal rather than loaded directly on board. FOB is still widely used for containers in practice, but FCA describes the actual handover more accurately.
Related terms
The seller pays for carriage to the named destination port, but risk transfers to the buyer when the goods are loaded at origin. The seller does not insure the cargo — that gap between cost and risk is the difference buyers most often miss.
As CFR, but the seller also buys marine insurance for the voyage. Risk still transfers on loading at origin; the buyer simply has a policy to claim against. Standard minimum cover is Institute Cargo Clauses (C) unless the contract says otherwise.
The window of days within which the vessel must arrive and be ready to load. Miss the laycan and the charterer may cancel; arrive early and the vessel waits at the buyer’s or seller’s expense depending on terms.
A daily charge payable when loading or discharging takes longer than the agreed laytime. On bulk cargoes it can move the economics of a shipment materially, which is why laytime terms belong in the contract, not the covering email.
The document issued by the carrier that serves as receipt for the cargo, evidence of the contract of carriage, and — critically — a document of title. Whoever holds the original endorsed bill controls the goods.
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