Incoterms FOB: Free on Board
Named Place Requirement: Port of Shipment
Applies to:Sea and inland waterway only
Seller pays all costs up to main carriage, then buyer takes over all cost responsibility.
Under the terms of FOB (short for “Free on Board”), the seller clears the goods for export and ensures they are delivered to and loaded onto the vessel for transport at the named port of departure.
The buyer takes over risk and costs, including import clearance and duties, as soon as the goods are loaded onto the transport vessel at the port of departure.
FOB only applies to ocean or inland waterway transport. As such, the named place is always a port. It does not apply if the main carriage is via air, ground or rail.
FOB Incoterm Obligations
- Goods, commercial invoice and documentation
- Export packaging and marking
- Export licenses and customs formalities
- Pre-carriage and delivery
- Loading charges
- Delivery onboard vessel at named port of shipment
- Proof of delivery
- Cost of pre-shipment inspection
- Payment for goods as specified in sales contract
- Main carriage
- Discharge and onward carriage
- Import formalities and duties
- Cost of pre-shipment inspection (for import clearance)
FOB (Free on Board) is the most commonly-used trade term but in practice it is used without reference to any version of the Incoterms® rules. In such cases it is then up to the seller and buyer to agree in their contract on what they mean when they use these three letters. This trade term goes back to the days of sailing ships, and in the Incoterms® 2020 rules, as in previous versions, requires the seller to place the goods on board the vessel nominated by the buyer. From that point on risk of loss or damage to the goods transfers to the buyer. “On board” is no longer defined as placing the goods “across the ship’s rail” and in fact is not defined any further as it will be a matter for the contract to specify depending on the nature of the goods. Cost of carriage is payable by the buyer, the bill of lading usually indicating “freight collect”. The seller must carry out all export formalities and the buyer must carry out import formalities. The buyer contracts for carriage therefore the shipper on the bill of lading should be the buyer not the seller. The seller will most likely require at least a mate’s receipt or some other form of evidence of export such as a copy of the bill of lading for their VAT/GST purposes. Often where there is a letter of credit involved the seller is shown on the bill of lading as the shipper, in which case the seller would be wise to inform themselves of the additional liabilities they might be taking on under the terms and conditions of the bill of lading. Under the Incoterms® 2020 rules FOB is inappropriate for container shipments because the cargo is given to the carrier at a place some distance from the port, such as a container yard or even the seller’s premises.
Any excerpts quoted from the Incoterms® 2020 rules are the copyright of the International Chamber of
Commerce. Source: ICC website. The full text of the 2020 edition of the Incoterms rules is available at
https://2go. iccwbo.org/. The word “Incoterms” is a registered trademark of the International Chamber of Commerce.