FOB Explained: Free on Board Delivery Term
FOB (Free on Board) is a sea freight Incoterms delivery term where the seller delivers goods on board the vessel at the port of shipment. The seller handles export customs and port loading; the buyer arranges and pays for ocean freight and insurance.
What Is FOB?
FOB (Free on Board) is an Incoterms 2020 delivery term used exclusively for sea and inland waterway transport. The seller delivers the goods on board the vessel at the named port of shipment. Once the goods pass the ship's rail, risk transfers from seller to buyer.
FOB is among the most widely used delivery terms in international sea trade, with over 35% of ocean freight transactions conducted on FOB terms according to ICC data.
Responsibility Split
| Task | Seller | Buyer |
|---|---|---|
| Packaging and preparation | Yes | |
| Export customs | Yes | |
| Transport to port | Yes | |
| Loading onto vessel | Yes | |
| Ocean freight | Yes | |
| Marine insurance | Yes | |
| Import customs | Yes | |
| Destination delivery | Yes |
FOB Price Components
FOB price includes: production cost + margin + inland transport to port + export customs + loading charges. It does not include ocean freight, insurance, or import-side costs.
FOB vs CIF Quick Comparison
| Factor | FOB | CIF |
|---|---|---|
| Ocean freight | Buyer pays | Seller pays |
| Insurance | Buyer arranges | Seller arranges (min ICC-C) |
| Risk transfer | Ship's rail | Ship's rail (same!) |
| Price level | Lower | Higher |
When to Use FOB
- Buyer has strong freight negotiation power
- Buyer wants to choose own carrier and insurer
- Buyer consolidates from multiple sea freight suppliers
- L/C (letter of credit) transactions often specify FOB
Note: FOB is for sea freight only. For road or multimodal transport, use FCA instead. The ICC recommends FCA for containerized cargo.
Frequently Asked Questions
Can FOB be used for road freight?
No, FOB applies only to sea and inland waterway transport. FCA is the multi-modal equivalent.
Is insurance mandatory under FOB?
Not for the seller. However, since risk transfers at the ship's rail, the buyer should strongly consider marine cargo insurance.
What is the difference between FOB and FCA?
FOB risk transfers at the ship's rail. FCA risk transfers when goods are handed to the carrier. For containerized cargo, FCA is more appropriate because containers are typically handed to the carrier at the terminal before vessel loading.
How is FOB customs value calculated?
Many countries (including Turkey and most of Europe) calculate customs value based on CIF, not FOB. FOB value is converted to CIF by adding freight and insurance.
References
- ICC Incoterms 2020
- World Shipping Council
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