Free on Board (FOB) is a shipping term that defines the point at which the ownership and responsibility for goods transfer from the seller to the buyer. This term is commonly used in international trade to clarify who covers the costs and risks during the shipment process.
Under FOB terms, the seller is responsible for delivering the goods to the specified port and loading them onto the buyer’s chosen vessel. Once the goods are on board, the buyer assumes ownership, risks, and any additional shipping costs.
FOB can be broken down into two common variations:
For example, in FOB Origin, if the goods are damaged during transit, the buyer must handle the claims and costs. In FOB Destination, the seller bears these responsibilities until delivery.
Bill of Lading, Incoterms, CIF (Cost, Insurance, and Freight), EXW (Ex Works), International Trade
What’s the difference between FOB Destination and FOB Shipping Point?
“FOB Destination” means the seller retains responsibility and bears the shipping costs until the goods reach the buyer’s location. “FOB Shipping Point” (or “FOB Origin”) means the buyer takes responsibility and pays the shipping costs once the goods leave the seller’s location.
How does FOB affect pricing?
FOB determines who bears the shipping costs and risks. Depending on the FOB terms, the seller might include shipping costs in the product’s price or list them separately.
Is FOB used for all modes of transportation?
Traditionally, FOB was used for sea and inland waterway transport. However, in modern trade, it’s sometimes used more broadly. It’s essential to specify the mode of transport in the agreement to avoid confusion.
How does FOB differ from CIF?
While FOB determines when responsibility transfers from seller to buyer, CIF (Cost, Insurance, and Freight) means the seller also pays for the cost, insurance, and freight to transport the goods to the buyer’s specified location.
Why is it essential to specify a location with FOB?
The specified location in FOB terms determines the exact point where ownership and risk transfer from the seller to the buyer. It’s crucial for clarity in contracts and to avoid disputes.
