Free on Board (FOB) is an internationally recognized Incoterms® rule that defines when the responsibility, cost, and risk of goods transfer from the seller to the buyer during an international shipment. Under FOB, the seller is responsible for preparing the goods, completing export customs clearance, and loading the cargo onto the vessel at the named port of shipment. Once the goods are loaded on board the vessel, the risk transfers to the buyer, who becomes responsible for the ocean freight, cargo insurance (if arranged), import customs clearance, and delivery to the final destination.
FOB is used only for sea and inland waterway transport and is commonly applied in international trade involving containerized and non-containerized cargo. The specific port named in the contract, such as FOB Singapore or FOB Shanghai, identifies the location where the transfer of risk and responsibility takes place.
Why It Matters
Free on Board (FOB) clearly defines the responsibilities of both the buyer and the seller during an international shipment. Understanding FOB helps businesses avoid misunderstandings, manage shipping costs effectively, and ensure a smooth transfer of risk throughout the transportation process.
