FOB: Free on Board

What is Free on Board (FOB)?

Free on Board, or FOB, is a shipping term that indicates who is responsible for paying shipping costs. The term is typically used when shipping goods from one country to another. Under the Incoterms 2010 standard, FOB is defined as follows: “The seller delivers the goods to the carrier or another person nominated by the seller at the port of loading appointed by the buyer, cleared for export.” In other words, the seller is responsible for shipping the goods to the port of loading, and the buyer is responsible for paying shipping costs from that point onward. This arrangement is often used when shipping goods from suppliers in one country to buyers in another. By using FOB shipping terms, buyers can be assured that they will not be responsible for paying any additional shipping costs beyond those that are already included in the purchase price.

Key Takeaways

• • What does FOB stand for? Free on Board, a shipping term that indicates who is responsible for paying shipping costs.

Why is (FOB) used in the shipping industry?

In the shipping industry, the term “FOB” is used to indicate who is responsible for paying shipping and handling costs. “FOB shipping point” or “FOB origin” means that the buyer is responsible for these costs, while “FOB destination” signifies that the seller will pay. This designation is important because it can have a significant impact on the logistics of importing goods. For example, if a seller ships an item “FOB shipping point,” they are effectively relinquishing all responsibility for the product once it leaves their hands. As a result, the buyer assumes all risk in the event that the shipment is lost or damaged. On the other hand, if the seller ships “FOB destination,” they remain responsible for the product until it reaches its final destination, which provides greater protection for the buyer. Ultimately, the use of FOB terms helps to clarifies who is responsible for shipping costs and risks, making it easier to manage shipments and avoid disagreements between buyers and sellers. 

Who pays the (FOB) Origin?

Transportation of the goods to the port of shipment, loading the items onto the shipping vessel, freight transport, insurance, and unloading and carrying the goods from the arrival port to the final destination can all be included in the costs associated with FOB. The customer is liable for paying the freight fees if the terms state “FOB origin, freight collect.” The customer is responsible for the products at the point of origin if the terms state “FOB origin, freight prepaid,” while the seller is responsible for shipping costs.