FOB (Free On Board)

FOB (Free On Board) is one of the most widely used Incoterms in maritime trade: it establishes that the seller fulfills its obligation once the goods are loaded on board the vessel nominated at the agreed port of shipment. From that moment, the buyer bears the cost of international freight, insurance and any risk of loss or damage.

The key point of FOB is the transfer of risk and cost: it happens the moment the goods are placed on board the vessel (in practice, once they are stowed). The seller pays inland transport to the port, export clearance and loading; the buyer pays for everything after that. It is a term reserved for sea and inland waterway transport, and it is not used for air cargo or for containers handed over at a terminal.

Because of its role in the supply chain and in foreign trade, FOB is central to any import and export operation run by an international logistics company.

FOB is probably the best-known Incoterm and, at the same time, the most misused of the entire Incoterms family. Its full name, Free On Board, sums up the idea: the goods travel "free of charge" for the seller until they are on board the vessel. In Incoterms 2020, the edition published by the International Chamber of Commerce (ICC), FOB is one of the eleven official terms and is restricted to sea and inland waterway transport.

Who pays for what under FOB

The split of responsibilities works like this:

• The seller packs the goods, moves them to the port of origin, handles export clearance and pays for loading on board the vessel.
• The instant the goods are placed on board, the risk transfers to the buyer.
• The buyer books and pays for ocean freight, insurance (if it wants coverage) and takes care of unloading at destination, import clearance and customs duties.

This division is what sets FOB apart from neighboring terms. Under FOB the seller delivers "onto the ship"; the buyer controls the international voyage. That is why importers with volume and negotiating leverage often prefer to buy FOB: they choose their own freight forwarder, negotiate freight rates and organize their own logistics at destination.

Who pays for what in an FOB shipment, at a glance

Why it matters in a real operation

Choosing the right Incoterm determines how much an import costs and where the risk sits. A concrete example: an Argentine company importing machinery from Shanghai buys FOB Shanghai. The Chinese supplier delivers the machine loaded on the vessel at the port of Shanghai; from there, the Argentine importer pays the freight to the port of Buenos Aires, buys the insurance and handles customs clearance and duties on arrival. If the machine is damaged during the voyage, the problem (and the insurance claim) belongs to the buyer, not the seller.

The FOB value also carries enormous fiscal and statistical weight in Argentina and the rest of LATAM: exports are usually declared and recorded at FOB value, while imports are measured at CIF value. That is why understanding the difference between these two values is not just customs theory; it is the basis for calculating costs, margins and the taxable base for duties and taxes.

How FOB value is calculated: an example with numbers

A manufacturer in Santa Fe, Argentina, exports a seed drill to a buyer in South Africa. The machine ships as breakbulk cargo, not in a container, and the sale is agreed FOB Buenos Aires, Incoterms 2020. With illustrative numbers, the FOB value adds up like this:

From there on, everything is the buyer's responsibility. If the same sale were agreed CIF, the seller would add the ocean freight and the insurance to the destination port on top of that USD 90,000, and that total would be the CIF value.

FOB vs CIF: the natural pair

The most frequent comparison is FOB versus CIF, because they are the two dominant Incoterms in maritime trade and they capture who controls freight and insurance.

The fine point: under both FOB and CIF the risk transfers at the port of origin, as soon as the goods are on board, not at destination. The difference is that under CIF the seller pays freight and insurance to the port of arrival but does not bear the risk of the voyage. Confusing "who pays" with "who bears the risk" is one of the most expensive mistakes in foreign trade.

FOB in US domestic shipping

In the United States, FOB also has a domestic meaning that has nothing to do with Incoterms. Under the Uniform Commercial Code, FOB origin (or FOB shipping point) means ownership and risk pass to the buyer when the seller hands the goods to the carrier, while FOB destination means they pass only when the goods reach the buyer. This usage applies to any mode of transport, trucks and rail included, and is common on domestic invoices and purchase orders. In an international contract, always name the Incoterm explicitly ("FOB Shanghai, Incoterms 2020") to avoid mixing the two meanings.

Common mistakes with FOB

• Using FOB for containers delivered at a terminal: Incoterms 2020 recommends FCA instead of FOB when cargo travels in a container and is handed over at the port terminal rather than directly on board. Keeping FOB in that case creates a liability gap while the container waits at the port.
• Using FOB for air or land transport: FOB is sea or inland waterway only. Other modes call for terms such as FCA or DDP.
• Assuming insurance is included: under FOB, insurance is the buyer's responsibility (and decision). If the buyer does not buy it, the goods travel uninsured.

In short, FOB is the boundary where responsibility passes from seller to buyer right on the ship. Mastering this term, and how it relates to CIF and the rest of the Incoterms, is a basic requirement for negotiating real prices and allocating risk without surprises in any import or export operation.