The delivery term FOB, "Free on Board" means that the seller delivers or procures the goods on board the vessel named by the buyer at the named port. At the time of the completed loading of the container on board the vessel, the risks and costs are transferred to the buyer. Originally, the abbreviation referred only to transports by ship. Increasingly, the Incoterm FOB is also used for transports by other modes of transport, for example air freight.
Frequently asked questions
When is FOB a suitable delivery option?
FOB is often chosen as a delivery arrangement in classic shipping traffic. For container traffic, FCA is usually the better choice, as the seller usually does not have the possibility to load the container onto the ship himself with the help of a crane at the port.
Where is the place of delivery for FOB?
As the delivery condition FOB alone is not meaningful, the port of transshipment is usually added. Example: FOB Bremen or FOB Shanghai as well as the name of the ship.
Who bears the costs for FOB?
The exporter, i.e. the seller, delivers goods at his own expense and insurance up to the transport vessel. From the moment the goods are loaded onto the ship, the importer, i.e. the buyer, assumes all costs, obligations and risks for the transport to the destination.
When is the transfer of risk with FOB?
With Incoterm FOB, the risk passes to the buyer at the moment the goods are brought on board the ship. This means that the seller has fulfilled his obligation to deliver. In the Incoterms 2000, passing the ship's rail was already considered as fulfilment of the delivery obligation. In the new version, the supplier's risk has therefore been extended.
What has to be considered in case of FOB delivery?
In practice, you often come across formulations such as "FOB ex works", "FOB factory", "FOB airport", "FOB truck". Avoid these and instead use only the FOB Incoterm defined by the ICC, which clearly regulates costs, risks and obligations.
What does "genuine FOB" and "non-genuine FOB" mean?
With genuine FOB, the exporter delivers the goods export-free to the ship and assumes all customs and export formalities as well as all costs up to that point. From this point on, the importer determines the further course of the transport and is responsible for it. The buyer concludes the transport contract at his own expense. In the case of non-genuine FOB, on the other hand, the seller commissions his supplier to handle the shipment, including the transport contract and the costs incurred. This is often referred to as "FOB shipped". Again, please only agree on a real FOB as regulated by the ICC.
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Source: Incoterms® 2020 by International Chamber of Commerce
The Incoterms® are a central set of rules for international trade. They do not constitute a complete contract of sale, but become part of the contract.All previous versions of the Incoterms® remain valid.Unless a year is specified, the following shall apply upon application:
Until 31 December 2019, Incoterms® 2010 shall apply.
As of 1 January 2020, Incoterms® 2020 shall apply.
Older Incoterms® may also apply, provided the relevant year is indicated.
Note: This page is for information purposes. For a detailed explanation, please refer to the International Chamber of Commerce (ICC) publication INCOTERMS® 2020. For a complete and detailed description of all rights and obligations arising from the use of the above Incoterms®, please refer to the official text of the ICC. Only the text version published by the ICC is binding!
As an expert in international trade and logistics, I bring a wealth of knowledge and practical experience to the discussion of the delivery term FOB ("Free on Board") and the associated Incoterm rules. With a background in the intricacies of global commerce and a commitment to staying abreast of the latest developments, I am well-equipped to delve into the details of FOB and provide valuable insights.
Let's break down the key concepts in the provided article:
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FOB (Free on Board):
- Definition: FOB indicates that the seller delivers or procures goods on board the vessel named by the buyer at the named port.
- Risk Transfer: The risks and costs shift to the buyer at the completion of loading the container on board the vessel.
- Applicability: Initially used for ship transports, FOB is increasingly utilized for other modes of transport, such as air freight.
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Suitability of FOB as a Delivery Option:
- FOB is often chosen in classic shipping traffic, but for container traffic, FCA might be a better choice, especially when the seller cannot load the container onto the ship personally.
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Place of Delivery for FOB:
- The FOB delivery condition is complemented by specifying the port of transshipment, e.g., FOB Bremen or FOB Shanghai, along with the name of the ship.
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Costs for FOB:
- The exporter (seller) bears the costs and delivers goods up to the transport vessel. The buyer assumes costs, obligations, and risks from the moment the goods are loaded onto the ship.
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Transfer of Risk with FOB:
- Risk transfers to the buyer when the goods are brought on board the ship, indicating fulfillment of the seller's delivery obligation.
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FOB Delivery Considerations:
- It is recommended to use only the FOB Incoterm defined by the ICC for clear regulation of costs, risks, and obligations.
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"Genuine FOB" vs. "Non-genuine FOB":
- In genuine FOB, the exporter handles customs and export formalities up to delivering goods to the ship, and the buyer takes responsibility for the transport thereafter. Non-genuine FOB involves the seller commissioning their supplier for shipment, often referred to as "FOB shipped."
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Incoterms® and their Validity:
- The Incoterms® are a set of rules for international trade, not constituting a complete contract but becoming part of it.
- Previous versions remain valid, and unless a year is specified, Incoterms® 2010 applied until December 31, 2019, while Incoterms® 2020 apply from January 1, 2020.
In conclusion, a deep understanding of FOB and Incoterms® is crucial for businesses engaged in international trade, ensuring smooth and well-regulated transactions. If you have any questions about the transport of goods, it is recommended to consult experts familiar with ICC regulations and guidelines.
