FOB (Free On Board) is an Incoterms® 2020 rule used only for sea or inland waterway transport. The seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment.
Risk Transfers On Board
The old expression “ship’s rail” should not be used as the Incoterms® 2020 risk-transfer test. Risk transfers when the goods are actually on board the nominated vessel at the agreed port of shipment.
| Activity | Seller | Buyer |
|---|---|---|
| Export clearance | Yes | — |
| Deliver/load on board nominated vessel | Yes | Nominates vessel |
| Main ocean carriage | — | Yes |
| Insurance | No mandatory obligation | Arrange as appropriate |
| Import clearance/duties | — | Yes |
FOB and Containerized Cargo
ICC specifically notes that FOB is not appropriate where the seller hands containerized goods to a carrier at a terminal before the goods are on board. In that common situation, parties should consider FCA.
Example
FOB Port of Shanghai: the seller clears the goods for export and delivers them on board the buyer-nominated vessel. Risk transfers once the goods are on board. The buyer arranges and pays the ocean freight and bears transit risk from that point.
FOB vs Domestic “FOB” Terms
Some countries use phrases such as “FOB Origin” or “FOB Destination” under domestic commercial law. Those expressions should not be confused with ICC’s FOB Incoterms® 2020 rule.
Reference: ICC Incoterms® 2020, FOB explanatory notes.
