What is FOB?
Free on Board, or FOB, is an international commercial law term, specifying what point respective obligations, costs, and risks are involved in the delivery of goods shifts from the seller to the buyer, under the Incoterms standard published by the International Chamber of Commerce.
Under the FOB Incoterms, the seller is responsible for all costs and risks, until the goods are loaded aboard the vessel at a given port of shipment.
When should FOB be used?
FOB should only be used for non-containerized ocean freight, however, it is often used for incorrect modes of transport. This introduces contractual risks and complications. The proper Incoterm for other modes of transport is FCA, which was introduced in the 1980 version of Incoterms.
When does the seller’s obligation end according to FOB?
The seller’s responsibility does not end unless the goods are appropriated to the contract, clearly set aside, or otherwise identified as the contract goods. In other words, the seller’s responsibility ends when the goods are placed on board of the vessel.
Because of this, FOB contracts require the seller to deliver goods on board a vessel, designated by the buyer as customary at the port in question. The seller is responsible for arranging export clearance.
What is the buyer responsible for according to FOB?
According to FOB, the buyer is responsible for the cost of ocean freight transportation, bill of lading fees, insurance, unloading, and door delivery.