Incoterm FOB (Free on Board): the golden rule of sea freight

The FOB Incoterm (Free on Board) is, without a doubt, one of the most popular and widely used Incoterms in global sea transport. Under FOB, the seller fulfils their delivery obligation when the goods are loaded on board the vessel at the agreed port of shipment.

It is a term used exclusively for sea freight and is the preferred option for many importers as it allows them greater control over the main transport.

How FOB works: the key moment of loading

With the FOB Incoterm, the seller is responsible for the entire logistics process until the goods are inside the vessel. This includes land transport at origin, managing export customs, and loading on board.

The transfer of risk and costs occurs at the exact moment the goods cross the ship's rail, literally.

Practical example:

Purchase under FOB Shanghai

You order a batch of electronic products from a supplier in China under Incoterm FOB (Port of Shanghai).

Transport at origin

The Chinese supplier organises and pays for the transport from their factory to the Port of Shanghai.

Loading on board

The supplier also handles the loading of the goods onto the vessel.

Transfer of Risk

The moment your cargo is lifted by the crane and placed on board the vessel, the risk of any damage or loss passes from the supplier to you.

Your responsibility (Buyer): From that moment on, you handle everything: arranging and paying for sea freight, arranging insurance, managing import customs, and all costs up to your final warehouse.

Risk example: If the container falls into the sea after being placed on the vessel, the responsibility is yours.

Responsibilities under Incoterm FOB

Seller's responsibility (maximum until on board):

Packing and preparing the goods.

Arranging and paying for land transport at origin.

Arranging and paying for export customs clearance.

Loading the goods on board the vessel.

Assuming risk until the goods are on board.

Your Responsibility as a buyer:

Assuming the risk from the moment the goods are on board the vessel.

Arranging and paying for the main carriage (sea freight).

Arranging and paying for insurance.

Arranging and paying for import customs clearance.

Paying for transport at the destination.

FOB vs. CIF: Which one to choose?

The difference between FOB and CIF is substantial, and you should be aware of these differences before choosing one over the other:

Freight control

FOB

As the buyer, you have total control over the hiring of sea freight. This allows you to negotiate rates and choose your preferred shipping line.

CIF

The seller is responsible for arranging and paying for the freight and insurance. You have less control over the transport.

Final cost

FOB

Greater control over costs, possibility to optimise rates.

CIF

The final cost can often be higher because the seller adds a margin.

Recommended for

FOB

Experienced importers with a trusted freight forwarder.

CIF

Importers who prefer to delegate freight to their supplier.

If you are an experienced importer with a trusted freight forwarder, FOB is an excellent option for optimising costs and having more control. If you prefer to delegate the freight to your supplier, CIF might be a better choice.

Other Incoterms

EXW

Ex Works

The least responsibility for the seller. The goods are delivered at their warehouse or factory. The buyer assumes all costs and risks from that point.

More information

FCA