What is FOB Incoterms
When goods are purchased or sold "Free on Board" (FOB), it indicates that the seller is responsible for delivering the goods to a designated ship at an agreed-upon port. The seller is tasked with loading the goods onto the vessel. Subsequently, the buyer assumes responsibility for import procedures and transportation to the ultimate destination. FOB is among the original Incoterms, tracing its origins to the era of sailing ships and its inclusion in the initial release of Incoterms in 1936. It remains one of the most commonly employed commercial terms.
What Are the Seller’s Obligations?
In an FOB sales contract, the seller undertakes the following responsibilities:
1. Export Packaging: Ensuring proper packaging for safe shipment of the goods.
2. Loading Charges: Covering expenses related to loading at the seller’s premises.
3. Delivery to Port: Bearing trucking fees for transporting the goods from the warehouse to the port of loading.
4. Export Duty, Taxes & Customs Clearance: Ensuring compliance with export regulations and facilitating customs procedures.
5. Origin Terminal Handling Charges (OTHC): Taking care of charges associated with terminal handling at the origin.
6. Loading on Carriage: Handling the costs of loading the goods onto the carriage.
What Are the Buyer’s Responsibilities?
Under the FOB Incoterm, the buyer assumes the following responsibilities and risks:
1. Freight Charges: Paying for carriage to transport the goods from the port of loading to the destination.
2. Insurance: Although not mandatory under FOB, the buyer may choose to purchase insurance for the shipment.
3. Destination Terminal Handling Charges (DTHC): Bearing charges for terminal handling at the destination.
4. Delivery to Destination: Assuming the final carrier fee to transport the goods to their destination once unloaded from the carriage.
5. Unloading at Destination: Covering expenses incurred during the unloading process at the buyer’s premises.
6. Import Duty, Taxes & Customs Clearance: Handling all taxes, fees, and customs procedures associated with importing the goods. In case of dunnage, penalties, or delays, the buyer is responsible for associated charges and risks.
Second definition
Free on Board (FOB) is an Incoterm indicating that the seller is accountable for loading the purchased goods onto the ship, including all related expenses. Once the goods are securely aboard the vessel, the risk shifts to the buyer, who then takes responsibility for the remaining transportation. FOB is widely used as the primary agreement between international buyers and sellers for sea shipments. It specifically pertains to shipments via sea and inland waterways.