FOB (Free On Board) Incoterms® 2020 rule
The seller clears export and loads the goods on the buyer's ship at the port of shipment; the buyer pays sea freight onwards.
In our own words, checked against public explanatory sources. The official rule text is published by ICC.
- Transport mode
- Sea and inland waterway only
- Risk passes
- On board the ship at the port of shipment
- Seller must insure?
- No
Who pays, at a glance
- Seller pays or arranges:
- packaging, loading at origin, export clearance, pre-carriage.
- Buyer pays or arranges:
- main carriage, unloading at destination, import clearance, import duties, on-carriage.
- Depends on the delivery place or arrangement:
- insurance — see the notes in the cost table.
Where risk passes
Risk passes once the goods are on board the ship at the agreed port of shipment.
Cost and risk diagram
Who pays for what
| Cost item | Paid / arranged by | Notes |
|---|---|---|
| Packaging | Seller | |
| Loading at origin | Seller | Includes loading the goods onto the ship at the port of shipment. |
| Export clearance | Seller | |
| Pre-carriage | Seller | |
| Main carriage | Buyer | |
| Insurance | Depends | No party has to insure under this rule. Each may cover the part of the journey where it carries the risk: the seller up to delivery, the buyer after it. |
| Unloading at destination | Buyer | |
| Import clearance | Buyer | |
| Import duties | Buyer | |
| On-carriage | Buyer |
Insurance
This rule puts no obligation on the seller to insure the goods for the buyer. Either side may still choose to buy cover for its own risk.
Common mistakes
- Using FOB for an inland place, a road-only route or air freight; it only works for sea and inland waterway transport.
- Reading FOB as 'freight on board', which is not one of the rules.
- Using FOB for container shipments; sources recommend FCA, because the seller usually loses control of the container before it is loaded.
In your ERP and on invoices
Practical consequences of the cost split above for order data, cost bookings and invoice layout. Generic — not specific to any ERP product.
- Store the rule code, the edition (for example 2020) and the named place as separate fields on orders, and print all three on the invoice.
- Main-carriage freight is a buyer cost: the buyer's landed-cost or freight accrual should include it; the seller's sales price should not.
- Import duties are a buyer cost: the buyer's landed-cost calculation should add duties and clearance fees on top of the purchase price.
When to look at another rule
Derived from the cost tables: rules for the same kind of route that differ from FOB in one of export clearance, main carriage, import clearance or insurance.
- If the seller should arrange and pay the main carriage: CFR.
- Same split of those four duties but a different risk point: FAS.
Compare FOB with
Questions about FOB
- Where does risk pass from seller to buyer under FOB?
- Risk passes once the goods are on board the ship at the agreed port of shipment.
- Which transport modes can FOB be used for?
- Sea and inland waterway only.
- Who pays for insurance under FOB?
- Under FOB the seller has no obligation to insure the goods for the buyer.
- Who is responsible for export clearance under FOB?
- The seller.
- Who is responsible for main carriage under FOB?
- The buyer.
- Who is responsible for import clearance under FOB?
- The buyer.
- Who is responsible for import duties under FOB?
- The buyer.
- Who is responsible for unloading at destination under FOB?
- The buyer.
Sources
Checked on .
- Export Development Canada — edc.ca
- Netherlands Chamber of Commerce (KVK) — kvk.nl
- UK Department for Business and Trade (business.gov.uk) — business.gov.uk
- US International Trade Administration — trade.gov
- ICC Academy (International Chamber of Commerce) — academy.iccwbo.org
- Maersk (chart by Pilot Freight Services) — delivers.maersk.comsecondary