FOB — Free on Board

Modern containerised cargo is handed to the shipping line at an inland container depot (CFS or CY) days before vessel loading. The concept of risk transferring 'on board the vessel' is therefore out of step with how containers actually move. During the gap between depot handover and vessel loading, neither party clearly bears the risk under FOB. FCA at the container depot correctly captures risk transfer at the point of actual handover to the carrier.

Under FOB, the buyer nominates the vessel and pays ocean freight. Under CFR, the seller pays ocean freight to the destination port. In both cases, risk transfers to the buyer when goods are on board at the export port. CFR simply moves the freight payment obligation from buyer to seller.

CIF adds cargo insurance to CFR — the seller pays freight AND minimum cargo insurance. Under FOB, the buyer is responsible for both freight and insurance. Under CIF, the seller arranges freight and insurance; under FOB, the buyer arranges both.

The named port of shipment is the export port where the seller loads goods onto the vessel. For example: FOB Shanghai, FOB Lisbon, FOB Rotterdam. The named port determines which country's export formalities apply, where stevedoring costs are incurred, and where risk transfers.

The seller handles export customs clearance under FOB. As the exporter of record, the seller files the export declaration, obtains any required export licences, and pays export duties if applicable. This is consistent across all F-terms (FAS, FCA, FOB).

FOB stands for Free On Board. It is one of the eleven Incoterms 2020 trade terms and applies only to sea and inland waterway transport. Under FOB, the seller delivers goods on board the nominated vessel at the named port of shipment. Once goods are loaded, risk and responsibility transfer to the buyer. The buyer nominates and pays for the ocean freight.

A cork manufacturer in Portugal sells wine corks on FOB Lisbon terms to a winery in Argentina. The seller delivers the corks to the vessel at the Port of Lisbon and loads them on board. From that moment, the Argentine buyer bears all risk. The buyer has already arranged ocean freight with a shipping line and will handle import customs on arrival in Buenos Aires.

An FOB price includes the cost of the goods, export customs clearance, and delivery on board the vessel at the named export port. It does not include ocean freight, marine insurance, import customs, or delivery at destination. To calculate the landed cost from an FOB price, add ocean freight, insurance, import duties, and local delivery charges.

Risk transfers from seller to buyer when the goods are on board the named vessel at the export port. Before loading is complete, it is the seller's risk. After goods are on board, it is the buyer's risk. This is why FOB creates a problem for containerised cargo — the goods leave the seller's control at the container depot, not at the vessel.

For bulk and break-bulk cargo shipped directly into vessel holds at a quayside, FOB and FCA produce similar results. The critical difference is for containerised shipments: FOB is not recommended because containers are handed over at inland depots, not at the vessel. FCA accurately reflects this reality and is the ICC-recommended term for containerised and multimodal shipments.

Terminal handling charges (THC) and stevedoring costs at the export port are generally the seller's responsibility under FOB, as they fall before the goods cross the ship's rail. However, port costs can vary significantly by trade route and the specific port, so parties should explicitly address port charges in the sales contract to avoid disputes.

No. FOB applies only to sea and inland waterway transport. For air freight, the equivalent Incoterm is FCA (Free Carrier) at the named airport cargo terminal. Specifying FOB for an air shipment creates a legal ambiguity — there is no vessel rail for risk to transfer across.

Incoterms 2020 is the current edition of the ICC trade terms, effective from 1 January 2020. FOB appears unchanged in substance — risk still transfers on board the vessel at the named export port. The 2020 edition reinforces the guidance that FOB is not appropriate for containerised cargo, and that FCA should be used instead for containers and multimodal shipments.

No. Under FOB, the buyer is responsible for arranging cargo insurance for the ocean voyage. The seller's risk ends at the ship's rail. Buyers should arrange marine cargo insurance covering the voyage from the export port to the destination. If the buyer wants the seller to arrange insurance, they should use CIF instead.

If the vessel is delayed and the goods are ready but cannot be loaded, the risk and any storage costs typically shift to the buyer once the seller has placed the goods at the buyer's disposal and notified the buyer — provided the delay is due to the buyer's nominated vessel and not the seller's actions. The specific contractual terms and the sales contract should address this scenario explicitly.