Sea and inland waterway only · Incoterms 2020
FOB Incoterm: Free On Board (Incoterms 2020)
The classic sea rule — risk passes when the goods are on board; the buyer runs the voyage.
FOB at a glance
Under FOB the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment, cleared for export. Risk transfers once the goods are on board; the buyer arranges and pays for the ocean voyage.
- Full term
- FOB — Free On Board
- Transport mode
- Sea and inland waterway only
- Delivery point
- On board the nominated vessel at the named port of shipment
- Risk transfers
- When the goods are on board the vessel at the port of shipment
- Export clearance
- Seller
- Import clearance
- Buyer
What FOB means in practice
FOB is probably the most famous three-letter code in trade — and one of the most misapplied. Its logic is elegant for cargo that is physically lifted or pumped aboard a ship: the seller's responsibility runs up to and including loading, and the moment the goods are on board, the voyage belongs to the buyer.
The buyer nominates the vessel, books and pays the ocean freight, and carries risk from loading onwards. That gives buyers with strong ocean freight contracts real control over cost and routing — a major reason commodity buyers and large importers keep FOB at the heart of their sourcing terms.
The trouble starts with containers. A container is handed to the carrier at a terminal, sometimes a week before it is lifted aboard. Under FOB the seller keeps risk through that terminal period despite having no control over the box — a gap practitioners often close by using FCA instead. FOB also remains deeply embedded in letter-of-credit practice, where the on-board bill of lading it naturally produces is exactly what banks want.
Buyer vs seller responsibilities
| Task | Responsible |
|---|---|
| Packaging & export marking | Seller |
| Loading at origin | Seller |
| Pre-carriage (inland transport, origin) | Seller |
| Export clearance | Seller |
| Origin terminal handling | Seller — The seller's side runs through loading on board; how terminal charges are billed varies by port and liner terms. |
| Main international transport | Buyer |
| Cargo insurance | Buyer — Neither party is obliged to insure. The buyer carries risk from loading, so cover is normally arranged in the buyer's interest. |
| Import clearance | Buyer |
| Import duties & taxes | Buyer |
| Delivery to final destination | Buyer |
| Unloading at destination | Buyer |
In liner trades, terminal and loading charges may be built into the buyer's freight contract even though the rule assigns delivery on board to the seller — align the contract with the actual freight terms to avoid double billing.
Where costs transfer — and where risk transfers
Cost transfer
The seller pays through loading on board: inland transport, export clearance and its share of port and loading charges. From on board, the buyer pays ocean freight, insurance if taken, discharge, import clearance, duties and onward delivery.
Watch the interface with liner terms: if the buyer's freight rate is quoted "liner in" (loading included), the loading cost the seller expected to pay may already sit inside the buyer's freight — one of the classic FOB double-charge scenarios that contract wording should resolve.
Risk transfer
Risk transfers when the goods are on board the vessel at the named port of shipment. Loss during inland transit or port storage before loading is the seller's; loss during the voyage is the buyer's.
Cost and risk transfer together at the ship. The practical wrinkle is the container gap: for containerised cargo delivered to a terminal days early, the seller holds risk over goods it cannot see or control until the lift — a gap that has produced enough disputes that many insurers and forwarders steer container business toward FCA.
When FOB works well
- Bulk and break-bulk sea cargo — minerals, grain, steel, project pieces — physically loaded aboard at the port.
- Buyers with strong ocean freight contracts who want to control carrier choice, routing and freight cost on the main leg.
- Letter-of-credit transactions where an on-board bill of lading is required and the seller needs to obtain it directly.
- Established commodity trading lanes where FOB pricing is the market convention and both sides price the risk split accurately.
When to think twice about FOB
- Containerised cargo handed over at terminals — the pre-loading risk gap makes FCA the cleaner mirror of reality.
- Any air, road or rail movement: FOB is a sea and inland-waterway rule, whatever commercial slang suggests.
- Buyers without ocean freight capability — if the seller is better placed to book the voyage, CFR/CIF may serve both sides better.
- Sellers who want to keep freight control as part of their commercial offer — quoting C-terms keeps the carriage relationship on the seller's side.
FOB in the real world
Mineral concentrate FOB Newcastle to a Japanese smelter
A Japanese smelter contracts an Australian producer for zinc concentrate on "FOB Newcastle (Incoterms 2020)" terms. The buyer charters the vessel and books freight under its own contract of affreightment; the producer rails the concentrate to the port, completes export formalities and loads it aboard.
Risk passes as the concentrate goes on board. During the voyage, heavy weather causes cargo shift and a moisture claim — this is the buyer's insurance event, and its marine policy responds. The seller's file is already closed: its obligations ended at loading.
The economics suit both sides: the producer prices its logistics only to the ship's rail; the smelter leverages its freight program across many suppliers and keeps voyage optionality in a volatile freight market.
Common mistakes with FOB
Using FOB for containerised cargo by default
Containers leave the seller's control at the terminal gate, but FOB keeps the seller's risk alive until vessel loading. That mismatch creates a no-man's-land for damage discovered after terminal receipt — FCA closes it.
Borrowing US-domestic "FOB" meanings
In North American domestic usage "FOB destination/origin" describes something different from the Incoterms rule. Cross-border contracts should say "Incoterms 2020" explicitly so nobody imports the wrong definition.
Assuming freight or insurance is included
FOB prices exclude the voyage. The buyer books and pays freight and — since neither party is obliged to insure — should arrange cargo cover from loading, not from arrival.
Ignoring liner-terms overlap on loading costs
When freight is booked on terms that include loading, the same lift can be charged inside the buyer's freight and invoiced to the seller by the terminal. Contracts should state who bears loading and origin THC against the actual booking terms.
TradeIntel insight
FOB earns its keep where the buyer's freight desk is a genuine profit centre — commodity flows, chartering programmes, contracted ocean rates. In container procurement, we often see FOB requested simply because a price list has always said FOB. Before repeating it, ask one question: who actually controls the container between the terminal gate and the ship? If the answer is "nobody on our side", FCA pricing from the same supplier is usually a like-for-like swap that removes an uninsurable-feeling week of exposure.
Is FOB right for your shipment?
Answer eight questions about your shipment and capability profile — the TradeIntel Incoterms Assessment explains which rules fit and why.
Frequently asked questions
When exactly does risk transfer under FOB?
When the goods are on board the vessel at the named port of shipment. Before that point — inland transit, port storage, the quay — loss or damage is the seller's; from on board onwards it is the buyer's.
Who books and pays for ocean freight under FOB?
The buyer. The buyer nominates the vessel or books the liner service, pays the freight, and controls routing and carrier choice on the main leg.
Why do practitioners prefer FCA over FOB for containers?
Because containers are handed over at terminals days before loading, FOB leaves the seller carrying risk over a box it cannot access. FCA transfers risk at the terminal handover, matching the real flow. The preference is practical, not absolute — some container lanes still run on FOB with both sides aware of the gap.
Does FOB include insurance?
No. Neither party has an insurance obligation under FOB. Buyers normally insure from loading onwards, since that is when their risk begins — and prudent buyers align cover with any pre-loading exposure their contract creates.
Is FOB valid for air freight?
No — FOB is a sea and inland-waterway rule. For air shipments with a similar risk split, FCA at the origin airport or forwarder's facility is the equivalent structure.
What should be named after "FOB" in the contract?
The port of shipment, as precisely as practical (port, and terminal where it matters), plus "Incoterms 2020". "FOB Shanghai Incoterms 2020" tells everyone where delivery happens and which rulebook interprets it.
Related Incoterms guidance
Reviewed for practical procurement and logistics relevance by TradeIntel.
TradeIntel provides educational decision support and does not provide legal, tax, customs or contractual advice. Incoterms should be incorporated into a complete sales contract with a precisely named place or port.