Incoterms Explained: Free On Board (FOB)

Free on Board is one of 11 Incoterms used in international trade. It denotes at which point the responsibility, risk and cost for the delivery of goods move from the seller to the buyer.

In the case of Free on Board, that’s when the goods are loaded onto the ship at the point of departure.

In this article, we’ll explain what Free on Board means in detail, its advantages and disadvantages, when you should use it and everything else you need to know.

 

What does Free on Board mean?

Free On Board (FOB for short means) that the buyer assumes responsibility for goods once they have been loaded onto the ship at port. This sees the share of responsibility split fairly evenly between the buyer and seller.

The seller is responsible for all of the costs up until loading goods on board. But once the buyer has accepted them, they become responsible for all ongoing costs.

Let’s look at an example. If you’re importing goods from a Chinese supplier and sending them from Shanghai to Felixstowe, a FOB agreement would see the Chinese supplier responsible for the goods until they load them on board your vessel in the port. From then on, you’d be responsible for all ongoing costs. The term is usually combined with a location to indicate where responsibility shifts. In this example, that might be “Free on Board Port of Shanghai”.

FOB is one of the best shipping terms when transporting cargo in bulk from the far east, but it can only be used for transportation by ocean freight and inland waterway. It is not used in air, road or rail freight.

What Are the Benefits of FOB

There are several benefits to Free on Board terms, which is why it is one of the most popular Incoterms.

For one, it is one of the best ways to keep your shipping costs down. FOB allows you to shop for the best shipping rate and know what your total transportation costs are in advance. It is very unlikely that you’ll incur any hidden fees or unforeseen fees when shipping on FOB terms, meaning the price is clear from the outset.

Second, the overseas responsibilities belong to your supplier. As the local party, they are best placed to transfer goods to the port and comply with local customs. What’s more, they are responsible should something go wrong at customs.

Third, Free on Board lets buyers choose their preferred freight forwarder for the entire journey, rather than relying on the supplier’s forwarder for half of it. It means you only need to communicate with one company for the entire process, reducing the risk of errors or miscommunication.

Finally, FOB terms are usually offered as standard by suppliers in the far east. That’s not to say you can’t choose another Incoterm, but FOB will be the most straightforward.

 

What does the FOB process look like?

The process for FOB is straightforward and as follows:

  • The buyer and seller agree on the place to deliver goods
  • The seller is responsible for transporting the goods to port
  • The seller is responsible for loading the goods onto the ship
  • The buyer takes responsibility for goods once they have been loaded.

What are my FOB Responsibilities as a Buyer?

As a buyer, you take full responsibility for your goods once they have been loaded onto the vessel at port. You are also responsible for all ongoing transportation and duty costs. You are also responsible for clearing customs in the UK and transporting and storing the goods once they arrive in port.

 

What are my Seller’s FOB Responsibilities?

As a seller, your supplier is responsible for the goods and all associated costs until they have been loaded onto our vessel. That’s not as simple as transporting them from their warehouse to the port, however.

Your supplier must also:

  • Pack goods ready for international transport
  • Pay for transport to the port
  • Produce all necessary documentation
  • Declare the goods at the local port and pay any necessary fees
  • Pay for the cost of loading your goods onto the vessel
  • Pay any and all related charges

 

What other Incoterms are there?

There are 11 Incoterms in total published by the International Chamber of Commerce (ICC). Each of them outlines which parts of the process buyers and sellers are responsible for. A complete list is below, ranging in order of the least amount of risk and responsibility for the seller.

  • Ex Works (EXW)
  • Free Carrier (FCA)
  • Free Alongside Ship (FAS)
  • Free on Board (FOB)
  • Carriage paid to (CPT)
  • Carriage and Insurance paid to (CIP)
  • Cost and Freight (CFR) [see our blog on understanding freight costs]
  • Cost, Insurance and Freight (CIF)
  • Delivered at Place (DAP)
  • Delivered at Place Unloaded (DPU)
  • Delivered Duty Paid (DDP)

 

FOB VS Ex Works Shipping Terms

Free on Board is one of the most common Incoterms used when shipping products from the far east to the UK. The other is Ex Works. So what’s the difference?

With Ex Works, you, the buyer, take on significantly more responsibility. You are responsible for all of the costs from your supplier’s warehouse to the UK. Like FOB, using Ex Works will let you calculate the cost of shipping upfront, but it will be much higher.

Get a FOB Quote from the Far East with DG International

If you want to ship FOB from the far east to the UK, DG International is your partner of choice. Our combination of cutting-edge technology and obsessive customer service ensures we deliver an unsurpassed freight forwarding experience. Find out more by speaking to our consultants or start building your own quote today.