Free on Board (FOB) – Incoterms® 2020 in detail

The incoterm FOB stands for Free on Board. It is an international trading term that specifies the obligations and responsibilities of sellers and buyers when trading goods via sea or inland waterway. Under this term, the seller is responsible for loading the freight on board of the vessel. The vessel as well as the port have to be specified by the buyer in advance. When the seller has loaded the goods onto the ship, the risk and costs are transferred to the buyer. Until that point of time, the seller is responsible. Afterwards, the buyer is responsible for transporting the goods to the destination and resulting import duties.

Examples of Free on Board (FOB) in action

Example:
German seller XY wants to ship vehicles to buyer Z who is settled in Ireland. Thus, they use FOB and agree on a specific port in Germany where the vessel is docked. The seller XY delivers the goods cleared for export onto the board of the vessel at the port they agreed on. As soon as the goods have been loaded on board, the risk transfers to the buyer Z who has to bear all costs from there on. He organizes the transport from there on to the final destination, which is his storage in Ireland.

What are the risks and costs?

What are risks and costs for the seller?

The seller is responsible for arranging and paying for transportation to the ship, as well as for loading the goods onto the vessel. Since incoterms 2010, the risk transfers to the buyer when the goods are placed on the ship. Until then, the seller is responsible for any damage or loss. At this point of time, the goods should be cleared for export and the buyer must hand over all important documents or information to the buyer, enabling him to import the freight successfully.

 

What are risks and costs for the buyer?

Once the goods are loaded onto the vessel, the buyer is responsible for transporting those to the destination. In addition, he has to arrange the import and pay for relevant taxes and duties, including the documents received by the seller. The Insurance for this Incoterm can be arranged and paid by either party as stated In their contract.

How ALS can support you with the complexity of international commerce

ALS is an innovative, neutral, and globally active customs broker. We operate as a unified entity, where every member of our team, from your dedicated contacts to our board of directors, is committed to meeting your specified needs.

We are here to guide you through the process of international trade. Whether it’s speaking to one of our sales team, or requiring further guidance with our consultants, we offer everything to help facilitate your complete end-to-end customs solution. By law, we are not able to provide you with advice on which Incoterm you should use. However, we can provide you with information which you can use to make your decision.

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What are the various Incoterms? Learn more! 

Incoterms – short for international commcerial terms – are being used to clarify rules and terms of the international customs trade.

Learn more in our other articles about incoterms:

  • Ex Works (EXW)
  • Free Carrier (FCA)
  • Carriage Paid To (CPT)
  • Carriage and Insurance Paid To (CIP)
  • Delivered at Place (DAP)
  • Delivered at Place Unloaded (DPU)
  • Delivery at Frontier (DAF)
  • Delivery ex-Ship (DEX)
  • Delivered Duty Paid (DDP)
  • Deliver Duty Unpaid (DDU)
  • Free Alongside Ship (FAS)
  • Free on Board (FOB)
  • Cost and Freight (CFR)
  • Insurance, and Freight (CIF)