"Free On Board" (FOB) is an Incoterm that requires the seller to load the goods on board a vessel chosen by the buyer. The term is strictly used for sea or inland waterway transport. The risk passes to the buyer once the goods are loaded onboard.

FOB Definition and Scope

Under FOB, the seller must arrange for the goods to be loaded onto the ship at the named port of shipment. Once the goods have passed the ship's rail, the risk transfers to the buyer.

Seller’s Obligations

  • Ensure the goods are packed, ready for shipment, and cleared for export.
  • Load the goods onto the ship arranged by the buyer at the designated port.

Buyer’s Obligations

  • Pay for all costs related to transporting the goods from the ship’s rail at the port of shipment.
  • Arrange for the shipping vessel, and assume risk and responsibility from the moment the goods are loaded onboard.

Risk and Cost Transfer Points

Risk transfers from the seller to the buyer as soon as the goods cross the ship's rail at the port of shipment.

Benefits and Considerations

  • Benefits: FOB is beneficial for buyers who can negotiate better shipping terms and prices directly with carriers.
  • Considerations: Sellers need to coordinate closely with carriers to ensure goods are loaded, while buyers must be ready to assume risks for sea transportation.

Common Scenarios

Widely used for goods that are transported in containers and suited for businesses that want control over the choice and arrangement of shipping.