FOB (Free On Board) - Incoterm 2020 - Obligations, Risk, Customs Value
F - Main carriage unpaid
Transport mode
Maritime only
Valuation group
fob
Risk transfer
On board the vessel at the named port
FOB (Free On Board) is one of the most widely used Incoterms® 2020 rules in international maritime trade. The seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment. The seller is responsible for export clearance.
FOB is exclusively reserved for sea and inland waterway transport. Risk and costs transfer when the goods are placed on board the vessel at the named port of shipment.
The seller bears all costs and risks until the goods are placed on board the vessel, including loading costs and export formalities. The buyer bears main carriage (ocean freight), insurance, unloading, and import clearance.
"Or procure" clause: FOB provides for the seller to "procure" goods already delivered on board, which meets the needs of string sales common in commodity trading.
FOB is the most commonly used maritime Incoterm worldwide, particularly suited to bulk cargo (oil, grain, ores) loaded directly on board the vessel. Important: FOB is not appropriate when goods are handed over to the carrier before they are on board the vessel (e.g., at a container terminal) - in that case, use FCA instead.
The correct wording is: "FOB [named port of shipment] Incoterms® 2020". Example: FOB Port of Rotterdam - Incoterms® 2020.
When does risk transfer from seller to buyer under FOB Incoterms 2020?
Risk transfers to the buyer at the moment the goods are placed on board the vessel at the named port of shipment. Any loss or damage occurring before the goods are on board - including during port handling, lifting, or crane operations - remains the seller's responsibility. This "on board" moment is the single most important concept in FOB.
Why should FOB not be used for containerized shipments?
In containerized shipping, goods are delivered to a container terminal well before loading on board the vessel. The seller loses control and visibility between terminal handover and actual on-board placement, making the risk transfer point unclear and difficult to prove. The ICC recommends using FCA for containers, with the optional on-board bill of lading mechanism if a documentary credit requires it.
What is the difference between FOB and FCA for maritime transport?
FOB requires delivery on board the vessel and is designed for bulk or breakbulk cargo loaded directly onto the ship. FCA requires delivery to the carrier at a named place, which can be a container terminal. For containerized maritime shipments, FCA is more appropriate because risk transfers at a clearly identifiable point - handover to the terminal operator.
Who pays ocean freight under FOB?
The buyer arranges and pays for ocean freight from the port of shipment. The seller bears all costs up to and including loading on board the vessel, including port handling charges at origin. If the seller must arrange and pay freight, the parties should use CFR or CIF instead of FOB.
Does FOB include export customs clearance?
Yes, the seller is responsible for all export customs formalities under FOB, including export licences, security clearances, and pre-shipment inspections. This allows the seller to retain documentary proof of export and justify VAT zero-rating. Import clearance is the buyer's exclusive responsibility.
How does FOB price relate to customs valuation?
The FOB price includes all costs up to loading on board and export formalities. To determine customs value at import in the EU (assessed on a CIF basis), the importer must add ocean freight to the first EU port of entry and insurance to the FOB price. FOB is the most widely used valuation basis worldwide for customs purposes.
What is the difference between FOB and CIF?
Under FOB, the buyer arranges and pays for ocean freight and insurance. Under CIF, the seller arranges and pays for both freight and insurance to the port of destination. However, in both cases, risk transfers at the same point - on board the vessel at the port of shipment. CIF simply adds cost obligations for the seller without changing the risk allocation.
What is the difference between FOB and FAS?
The key difference is the delivery point. Under FOB, the seller delivers goods on board the vessel and bears loading costs. Under FAS, the seller delivers alongside the vessel (on the quay or barge), and loading on board is at the buyer's cost and risk. FOB therefore provides more comprehensive coverage for the seller over loading operations.
Who is responsible for loading goods on board under FOB?
The seller bears the cost and risk of loading goods on board the vessel. This includes all port handling, lifting, and stowage operations until the goods are securely placed on board. Once on board, all subsequent costs and risks pass to the buyer. This allocation is what distinguishes FOB from FAS.
Can FOB be used for air transport?
No, FOB is strictly reserved for sea and inland waterway transport. The concept of delivery "on board the vessel" has no meaning in air, road, or rail transport. For air freight or multimodal shipments, the appropriate Incoterm is FCA (Free Carrier), which works with any mode of transport.
Is insurance mandatory under FOB?
No, neither party has a contractual obligation to arrange insurance under FOB. However, the buyer bears all risks from the moment goods are on board the vessel, making marine cargo insurance strongly recommended in practice. The seller must provide the buyer, upon request and at the buyer's cost, with the information needed to obtain insurance.
What does "on board" mean under FOB Incoterms 2020?
The goods must be physically placed on the deck or in the hold of the vessel. Delivery is not completed when goods are merely alongside the vessel (that would be FAS) or at the container terminal. The precise moment the goods cross onto the vessel determines risk transfer. For bulk cargo, this typically occurs when the goods pass through the loading equipment into the vessel's hold.
Who arranges the vessel under FOB?
The buyer is responsible for nominating the vessel and arranging ocean transport. The buyer must notify the seller of the vessel name, loading point within the port, and selected delivery date, all in sufficient time for the seller to prepare the goods for loading. Failure to provide this information can trigger early risk transfer to the buyer.
What happens if the vessel does not arrive at the port of loading?
If the buyer's nominated vessel fails to arrive, fails to take the goods, or closes for cargo before the agreed date, the buyer bears all risks and additional costs from the agreed delivery date, provided the goods have been clearly identified as the contract goods. The buyer is also liable for storage and demurrage charges incurred by the seller.
How should the FOB port of shipment be specified?
The correct wording is "FOB [named port of shipment] Incoterms 2020", for example "FOB Berth 7, Port of Rotterdam Incoterms 2020". It is advisable to specify the precise loading point within the port (quay, berth, jetty) to avoid disputes over costs and delivery point. The port of shipment - not the destination - must always be named.
What are the most common FOB mistakes?
The most frequent errors are using FOB for containerized shipments (use FCA instead), confusing the FOB and FAS delivery points, failing to nominate the vessel in due time, not specifying the precise port and loading point in the contract, and the buyer neglecting to arrange marine cargo insurance despite bearing risk from on-board loading.
Common mistakes
1Using FOB for containerized shipments when goods are delivered to the terminal before loading on board - use FCA instead.
2Confusing FOB and FAS: under FOB the seller pays for loading on board, under FAS the seller delivers alongside the vessel without loading.
3The buyer failing to nominate the vessel or communicate loading information in due time, triggering early risk transfer.
Seller vs buyer obligations
Obligation
Seller
Buyer
Export formalities
Loading
Main transport
Transport insurance
Unloading
Import formalities
Risk transfer diagram
ICC Explanatory notes
Delivery and transfer of risks
Under FOB, "Free On Board (named port of shipment)" means that the seller delivers the goods by placing them on board the vessel nominated by the buyer at the named port of shipment, or by procuring goods so delivered.
Risk transfers when the goods are on board the vessel. From that moment, the buyer bears all risks of loss of or damage to the goods.
The seller must deliver the goods:
on the agreed date, or
within the period notified by the buyer under B10, or
if no time is notified, at the end of the agreed period,
in the manner customary at the port.
Critical point: unlike FAS where delivery is completed alongside the vessel, under FOB the goods must be actually on board. This distinction is fundamental in determining the precise moment of risk transfer.
Applicable mode of transport
FOB is exclusively reserved for sea and inland waterway transport. It must not be used for road, air, rail, or multimodal transport.
This restriction is essential because the concept of delivery "on board the vessel" only makes sense in a maritime context. For containerized shipments where goods are handed over to the terminal before loading on board, the ICC recommends using FCA rather than FOB.
In modern containerized shipping, goods are delivered to the port terminal well before actual loading on board the vessel. The seller then loses control and visibility over the exact moment when the goods pass on board, making the risk transfer point imprecise.
Port and precise loading point
The parties are well advised to specify as clearly as possible the loading point within the named port of shipment. If the buyer does not indicate a specific loading point, the seller may select the point that best suits its purpose within the named port.
Recommended wording: "FOB [named port of shipment] Incoterms® 2020"
Example: FOB Berth 7, Port of Felixstowe - Incoterms® 2020
Important: the port of shipment must always be specified. It is this port that determines the place of delivery, the point of risk transfer, and the allocation of costs between seller and buyer.
The buyer must notify the seller (under B10) of the vessel name, loading point, and selected delivery date, in sufficient time to enable the seller to deliver in accordance with A2.
String sales and customs clearance
"Or procure" clause: FOB incorporates the concept of "procuring" goods already delivered on board the vessel. This mechanism is essential for string sales, common in commodity trading (oil, grain, metals).
In a string sale, goods are sold multiple times during transport. The intermediate seller does not need to physically perform the loading since they "procure" goods already placed on board by the first seller in the chain.
Export clearance: the FOB seller must carry out and pay for all export customs formalities. This is an important advantage because:
the seller retains documentary proof of the export;
the seller can justify VAT zero-rating on exports;
the buyer does not need an EORI number in the seller's country.
Import clearance: this is the exclusive responsibility of the buyer, including import licences, inspections, and payment of customs duties.
Critical points
Goods on board the vessel
Risk transfers only when goods are actually on board - not before, not alongside the vessel.
Under FOB, the risk transfer point is the moment when the goods are on board the vessel. This precision is fundamental:
Before loading: any damage occurring at the quay, during port handling, or during lifting operations before the goods are on board is borne by the seller.
On board the vessel: once the goods cross the ship's rail and are on board, risk passes to the buyer.
Difference with FAS: under FAS, risk transfers when goods are placed alongside the vessel. Under FOB, the goods must go further - they must be on board.
This distinction can have significant financial consequences in the event of an accident during loading (e.g., a pallet falling into the water between the quay and the vessel).
Recommendation: the seller should ensure that its insurance covers risks until the goods are actually on board the vessel.
Inappropriate use for containerized transport
FOB is not suited for containerized shipments - use FCA instead.
FOB is designed for goods loaded directly on board the vessel (bulk, breakbulk). It is inappropriate for modern containerized shipments where goods are handed over to the port terminal well before loading on board.
Problems with FOB for containers:
Goods are delivered to the container terminal, not directly on board the vessel.
The seller loses control of the goods between delivery to the terminal and actual loading on board.
The precise moment of risk transfer becomes unclear and difficult to prove.
In case of damage at the terminal, the question of liability is ambiguous.
ICC recommendation: for containerized shipments, use FCA (port of loading) with the optional on-board bill of lading mechanism if a documentary credit requires it. Risk transfer will then be clear: at the moment of delivery to the terminal/carrier.
Vessel nomination by the buyer
The buyer must nominate the vessel in due time - failure to nominate = early risk transfer.
Under FOB, it is the buyer who arranges maritime transport and nominates the vessel. The buyer has the obligation to notify the seller (B10) of:
the vessel name;
the loading point in the port;
the selected delivery date.
If the buyer fails to fulfill these obligations:
The buyer bears all risks of loss of or damage from the agreed date or the end of the agreed period.
The buyer bears additional costs incurred.
If the vessel fails to arrive or cannot take the goods or closes for cargo early: risk is transferred early to the buyer.
Condition: the goods must have been clearly identified as the contract goods.
Recommendation: the buyer must communicate vessel information sufficiently in advance to allow the seller to deliver under normal port conditions.
Detailed seller obligations (A1-A10)
Article A1General obligations
The seller must provide the goods and the commercial invoice in conformity with the contract of sale and any other evidence of conformity that may be required by the contract.
Any document to be provided by the seller may be in paper or electronic form as agreed or, where there is no agreement, as is customary.
Article A2Delivery
The seller must deliver the goods either by placing them on board the vessel nominated by the buyer at the loading point indicated by the buyer at the named port of shipment, or by procuring goods so delivered.
The seller must deliver the goods:
on the agreed date, or
within the period notified by the buyer under B10, or
if no such time is notified, at the end of the agreed period,
in the manner customary at the port.
If the buyer has not indicated a specific loading point, the seller may select the point within the named port of shipment that best suits its purpose.
Article A3Transfer of risks
The seller bears all risks of loss of or damage to the goods until they have been delivered in accordance with A2, with the exception of loss or damage in the circumstances described in B3.
Article A4Carriage
The seller has no obligation to the buyer to make a contract of carriage. However, the seller must provide the buyer, at the buyer's request, risk and cost, with any information in the possession of the seller that the buyer needs for arranging carriage.
If agreed between the parties, the seller must contract for carriage on the usual terms at the buyer's risk and cost.
The seller must comply with any transport-related security requirements up to delivery.
Article A5Insurance
The seller has no obligation to the buyer to make a contract of insurance. However, the seller must provide the buyer, at the buyer's request, risk and cost, with information in the possession of the seller that the buyer needs for obtaining insurance.
Article A6Delivery/transport document
The seller must provide the buyer at the seller's cost with the usual proof that the goods have been delivered in accordance with A2.
Unless such proof is a transport document, the seller must assist the buyer, at the buyer's request, risk and cost, in obtaining a transport document.
Article A7Export/import clearance
a) Export clearance: where applicable, the seller must carry out and pay for all export clearance formalities required by the country of export, such as:
export licence;
security clearance for export;
pre-shipment inspection; and
any other official authorisation.
b) Assistance with import clearance: where applicable, the seller must assist the buyer, at the buyer's request, risk and cost, in obtaining any documents and/or information related to all transit/import clearance formalities, including security requirements and pre-shipment inspection, needed by any country of transit or the country of import.
Article A8Checking/packaging/marking
The seller must pay the costs of those checking operations (such as checking quality, measuring, weighing, counting) that are necessary for the purpose of delivering the goods in accordance with A2.
The seller must, at its own cost, package the goods, unless it is usual for the particular trade to transport the type of goods sold unpackaged. The seller must package and mark the goods in the manner appropriate for their transport, unless the parties have agreed on specific packaging or marking requirements.
Article A9Allocation of costs
The seller must pay:
a) All costs relating to the goods until they have been delivered in accordance with A2, other than those payable by the buyer under B9.
b) The costs of providing the usual proof to the buyer under A6 that the goods have been delivered.
c) Where applicable, duties, taxes and any other costs related to export clearance under A7(a).
d) The buyer for all costs and charges related to providing assistance in obtaining documents and information in accordance with B7(a).
Article A10Notices
The seller must give the buyer sufficient notice either that the goods have been delivered in accordance with A2 or that the vessel has failed to take the goods within the time agreed.
Detailed buyer obligations (B1-B10)
Article B1General obligations
The buyer must pay the price of the goods as provided in the contract of sale.
Any document to be provided by the buyer may be in paper or electronic form as agreed or, where there is no agreement, as is customary.
Article B2Taking delivery
The buyer must take delivery of the goods when they have been delivered under A2.
Article B3Transfer of risks
The buyer bears all risks of loss of or damage to the goods from the time they have been delivered under A2.
If:
a) the buyer fails to give notice in accordance with B10; or
b) the vessel nominated by the buyer fails to arrive on time, or fails to take the goods, or closes for cargo before the deadline,
then, the buyer bears all risks of loss of or damage to the goods:
(i) from the agreed date, or in the absence of an agreed date,
(ii) from the date selected by the buyer under B10; or, if no such date has been notified,
(iii) from the end of any agreed period for delivery,
provided that the goods have been clearly identified as the contract goods.
Article B4Carriage
The buyer must contract at its own cost for the carriage of the goods from the named port of shipment, except where the contract of carriage is made by the seller as provided for in A4.
Article B5Insurance
The buyer has no obligation to the seller to make a contract of insurance.
Article B6Delivery/transport document
The buyer must accept the proof of delivery provided under A6.
Article B7Export/import clearance
a) Assistance with export clearance: where applicable, the buyer must assist the seller at the seller's request, risk and cost in obtaining any documents and/or information related to all export clearance formalities, including security requirements and pre-shipment inspection, needed by the country of export.
b) Import clearance: where applicable, the buyer must carry out and pay for all formalities required by any country of transit and the country of import, such as:
import licence and any licence required for transit;
security clearance for import and any transit;
pre-shipment inspection; and
any other official authorisation.
Article B8Checking/packaging/marking
The buyer has no obligation to the seller.
Article B9Allocation of costs
The buyer must pay:
a) All costs relating to the goods from the time they have been delivered under A2, other than those payable by the seller under A9.
b) The seller for all costs and charges related to providing assistance in obtaining documents and information in accordance with A4, A5, A6 and A7(b).
c) Where applicable, duties, taxes and any other costs related to transit or import clearance under B7(b).
d) Any additional costs incurred if the vessel fails to arrive on time, fails to take the goods, or closes for cargo before the agreed date, provided that the goods have been clearly identified as the contract goods.
Article B10Notices
The buyer must give the seller sufficient notice of:
transport-related security requirements;
the vessel name;
the loading point within the port;
the selected delivery date within the agreed period.
FOB vs FAS comparison
Critère
FOB
FAS
Point of delivery
On board the vessel
Alongside the vessel
Transfer of risks
Goods on board
Goods alongside the vessel
Loading costs
Seller (up to on board)
Buyer (from the quay)
Export clearance
Seller
Seller
Common usage
Very frequent (bulk, breakbulk)
Less common (specific bulk)
String sales
Yes ("or procure" clause)
Yes ("or procure" clause)
Critère
FOB
CFR
Main carriage
Buyer arranges and pays
Seller arranges and pays
Transfer of risks
On board at port of shipment
On board at port of shipment
Contract of carriage
By the buyer
By the seller
Insurance
No obligation
No obligation
Seller's costs
Up to on board + export
Up to port of destination + export + freight
Impact on customs value
Incoterm FOB belongs to group FOB. This group determines which adjustments (AK/BA) are applied to the invoiced price to calculate customs value.
Bulk maritime trade: FOB is the reference Incoterm for bulk commodities (oil, coal, grain, ores) loaded directly on board the vessel.
Breakbulk cargo: suited to non-containerized goods (timber, steel, vehicles) loaded individually on board.
Commodity trading: the "or procure" clause enables string sales during transport.
Buyer wants to control freight: FOB is ideal when the buyer wants to choose the shipping line and negotiate ocean freight.
When to avoid FOB
Containerized shipments: use FCA with the optional on-board bill of lading mechanism. Delivery to a container terminal does not correspond to the FOB concept of delivery "on board".
If the seller must arrange transport: use CFR or CIF.
If the seller must provide insurance: use CIF.
Multimodal transport: FOB is strictly maritime - use FCA, CPT, or CIP for other modes.
Recommended contractual clauses
Precise port: indicate the full port of shipment ("FOB Port of Rotterdam Incoterms® 2020").
Vessel nomination: the buyer must notify the vessel name, loading point, and delivery date sufficiently in advance.
Loading charges: specify the allocation of terminal handling charges (THC) if necessary, as customs vary between ports.
Loading window: provide a date range (laydays) for vessel arrival and loading.
Demurrage: agree on demurrage conditions in case of loading delays.
Analysis by profile
Advantages
Obligations partagées. Flexibilité et maîtrise du transport principal, mise à bord à la charge du vendeur.
Disadvantages
L'acheteur doit gérer et coordonner le transport maritime, il doit être familiarisé avec la logistique de transport et avoir identifié en amont des partenaires de confiance.
Recommendations
Recourir à cet Incoterm pour les transports maritimes de marchandises en vrac en petites quantités.
Anticiper la coordination avec le vendeur et le transporteur.
Bien mentionner le port d'expédition désigné dans le contrat et sur les documents de transport.
Assurance transport principal conseillée.
Important : Transport insurance is recommended for this Incoterm.
Comparative analysis (radar)
FOB
Compare with
Common mistakes
1
Using FOB for containerized shipments when goods are delivered to the terminal before loading on board - use FCA instead.
2
Confusing FOB and FAS: under FOB the seller pays for loading on board, under FAS the seller delivers alongside the vessel without loading.
3
The buyer failing to nominate the vessel or communicate loading information in due time, triggering early risk transfer.
4
Not specifying the port of shipment in the contractual clause, creating ambiguity about the place of delivery and risk transfer.
5
Neglecting to take out marine insurance as the buyer despite bearing risks from loading on board.
FOB 2020: Risk On Board - Not for Containers - The Trade Hub