FOB Meaning: Free On Board Explained (With Examples)

FOB: who pays and who carries the risk?

The table describes the normal allocation under ICC's FOB rule. Risk means responsibility for loss of or damage to the goods; it is separate from ownership. Exceptions involving buyer notices or the nominated vessel are explained below.

What should a Chinese FOB quote include?

Write the term with the shipment port and edition, for example: FOB Ningbo, Incoterms 2020. Naming the destination port instead would misidentify the FOB delivery location.

Ask for a quote covering the agreed goods, appropriate packaging, transport to the shipment port, export clearance and loading on board. Packaging is not required where the trade normally transports those goods unpackaged. Have the supplier and forwarder reconcile origin charges so an included cost is not charged again.

FOB does not mean free international shipping. For a broader comparison, use the Incoterms guide or responsibility chart.

Worked example: Ningbo to Felixstowe

Illustrative order: a buyer purchases machinery from a Chinese supplier for shipment from Ningbo to Felixstowe under FOB Ningbo, Incoterms 2020. Assume the cargo is suitable for delivery directly on board; a terminal handover needs the FCA check below.

The Chinese quote covers the machinery and the seller's work through on-board delivery at Ningbo, including export clearance and loading. In this example, the buyer appoints a forwarder, books the sea carriage and gives the supplier the vessel and loading details.

The buyer arranges any chosen cargo insurance, destination handling, UK import clearance and delivery from Felixstowe to the final address. In the normal case, damage before on-board delivery is the seller's risk; damage during the sea journey is the buyer's risk.

For this UK example, assuming HMRC's transaction-value method applies, customs value includes relevant transport, loading, handling and insurance costs to the UK border, adding amounts not already included. The FOB invoice alone is therefore not necessarily the customs value.

Import VAT valuation starts with the customs value and adds applicable customs duties, levies, excise duties and other import charges, excluding the import VAT itself. It also includes relevant incidental expenses to the first UK destination and those resulting from transport to a further UK destination known at importation. The first destination is the place shown in the import transport documents or, if none is specified, the first cargo transfer point in the UK. Avoid double counting; ask the customs agent to identify the additions.

When is FCA better than FOB?

ICC recommends considering FCA when goods are handed to the carrier before loading on the vessel, as commonly happens with containers delivered to a terminal. FCA can align delivery and risk transfer with that actual handover.

Specify the exact FCA delivery place and point. Where the agreed place is a terminal rather than the seller's premises, delivery occurs with the goods on the seller's arriving vehicle, ready for unloading and at the disposal of the buyer's nominated carrier or person. The seller also handles applicable export formalities.

See FCA or FOB for a container order with your own forwarder for the detailed choice.

What should buyers agree before accepting FOB?

Before accepting FOB, confirm the shipment port, loading point, delivery period, vessel instructions and destination charges. Ask who will arrange any cargo insurance and what the policy covers.

Failure to give the required buyer notice, or a nominated vessel that arrives late, fails to take the goods or closes for cargo early, can trigger earlier risk and additional costs. The goods must be clearly identified as the contract goods. Earlier risk runs from the agreed delivery date, the buyer's selected date or the end of the agreed delivery period, as specified by the rule. Discuss missed sailings before booking.

Agree payment terms, specifications, acceptance criteria and ownership separately: Incoterms do not settle those matters. Compare shipping offers using FOB, CIF and DAP for overseas buyers.

Incoterms allocate responsibilities between seller and buyer; destination customs and tax requirements need separate checks.

Sources

The ICC rules, introduction and checklist listed below support the trade-term explanations; the ICC Academy articles provide additional commentary. The listed HMRC guidance supports the UK valuation example.