FOB (Free on Board) explained: costs, risk and price
When risk passes under FOB, who pays which cost, how an FOB price is built, and why the ICC recommends FCA for container shipments.
Alper AzakoğluForeign trade consultant
3 min read
Updated:
What does FOB mean?
FOB (Free on Board) is one of the Incoterms 2020 rules. The seller clears the goods for export and loads them on the vessel named by the buyer at the port of shipment; risk passes to the buyer once the goods are on board. The buyer pays the ocean freight, the insurance and everything at destination.
FOB is always written with the port of shipment: “FOB Port of Mersin, Incoterms® 2020”.
Who pays what
| Item | Seller | Buyer |
|---|---|---|
| Preparing, packing and marking the goods | Seller | — |
| Transport from the factory to the port of shipment | Seller | — |
| Export customs clearance and its costs | Seller | — |
| Port and loading costs until the goods are on board | Seller | — |
| Ocean freight | — | Buyer |
| Cargo insurance | — | Buyer (optional) |
| Unloading and port charges at destination | — | Buyer |
| Import clearance, duties and taxes | — | Buyer |
| Transport from the destination port to the buyer | — | Buyer |
How an FOB price is built
The FOB price is the factory price plus every cost until the goods are on board. The figures below show the method only.
| Item (example) | Amount |
|---|---|
| Ex-works (EXW) price | USD 20,000 |
| Truck from factory to port | USD 650 |
| Customs broker and export declaration | USD 250 |
| Port, terminal and loading charges | USD 400 |
| FOB price | USD 21,300 |
Get current figures from your forwarder and customs broker before quoting; port charges in particular vary by port and season.
The limit of FOB: containers
FOB was designed for bulk and conventional cargo, where the seller controls loading on board. A container is usually delivered to the terminal days before the vessel arrives, and the terminal loads it. If something happens in between, the seller carries the risk of a period it no longer controls.
Watch out
For containers, the ICC recommends FCA (Free Carrier) instead of FOB. Under FCA, risk passes when the container is handed to the buyer’s carrier. If your buyer insists on FOB, cover the terminal period in the contract or with insurance.
When FOB works well
- The buyer has a strong freight contract: Large importers often have yearly rates with carriers; FOB lets them use them.
- Freight rates are volatile: A seller who does not want freight risk can keep the quote simple.
- Payment by letter of credit: Under FOB the bill of lading is marked “freight collect”; the documents in the credit must match.
Quote with the right delivery term
We choose the delivery term with you, prepare the price and the contract, and coordinate the shipment with your forwarder and customs broker.
Frequently asked questions
Does an FOB price include freight?
No. An FOB price covers the cost of the goods up to being loaded on board at the port of shipment. The buyer pays the ocean freight and insurance.
When does risk pass under FOB?
When the goods are on board the vessel named by the buyer at the port of shipment. Damage before loading is the seller’s risk; damage after is the buyer’s.
Can FOB be used for road or air transport?
It should not be. FOB is only for sea and inland waterway transport. For road, air and container shipments, use FCA.
What if the buyer’s vessel does not arrive on time?
Under Incoterms 2020 the buyer must tell the seller the vessel and loading time. If the vessel fails to arrive or take the goods, risk and extra costs can pass to the buyer from the agreed delivery date. Write this clearly in the contract.
Sources
- International Chamber of Commerce (ICC), Incoterms® 2020: iccwbo.org
Author
Alper Azakoğlu
For 30 years he has worked as foreign trade consultant and foreign trade manager for manufacturers in industrial zones across Türkiye. He writes these guides from his own work in the field.