Definitions #
The seller puts the goods on board the ship at the named port of shipment, and from that point the buyer carries the cost and the risk.
Technical Under Incoterms 2020, "Free On Board" (named port of shipment) means the seller delivers the goods on board the vessel nominated by the buyer; risk transfers from seller to buyer once the goods are on board, and the buyer arranges and pays the main carriage and insurance.
Example The contract is FOB Shanghai, so the buyer nominated the vessel and paid the ocean freight.
In everyday trade talk, FOB often loosely means "the price of the goods at the factory or port gate" — but strictly it is about the exact point where responsibility switches.
Technical In U.S. domestic commerce, "FOB" has a separate meaning under the Uniform Commercial Code (for example, "FOB destination"), where the term decides who pays the inland freight; always check which rulebook governs the contract.
Etymology #
From mercantile English "free on board" — free, that is, of freight charges up to the ship's rail — recorded since the 19th century. Under older loading practices the ship's rail was the risk boundary; Incoterms 2000, 2010 and 2020 progressively replaced it with the clearer "on board" standard.
Collocations #
- FOB (named port of shipment) the standard Incoterms 2020 phrasing that names the loading port
- FOB value the goods value at the port of shipment, excluding ocean freight and insurance
- FOB destination a U.S. UCC variant meaning the seller pays the freight to the buyer's location
- fob price a quoted price that carries the FOB incoterm with it
Real Business Examples #
- The contract is FOB Shanghai, so the buyer nominated the vessel and paid the ocean freight.
- Under FOB, risk passes to the buyer once the goods are on board the vessel, not when they leave the factory.
- The purchase order shows an FOB value of USD 25,000, excluding freight and insurance.
Register & Variants #
- Register: formal contract language; in office speech traders say "FOB Shanghai" as shorthand
- BrE/AmE: the Incoterms FOB is global; in the U.S., the UCC's own "FOB" terms (such as "FOB destination") are common in domestic truckload contracts and mean something different
Synonyms & Antonyms #
- Synonyms: free on board, FOB (named port of shipment)
- Antonyms: DAP (the seller handles delivery much further); EXW (the seller does even less)
Common Errors #
- Assuming FOB means the seller is responsible until the goods reach the destination port Under Incoterms, FOB risk transfers at the port of shipment, on board
- Using FOB for air freight FOB is a sea and inland-waterway term; for air, rail or multimodal shipments use FCA, which is also the safer choice for containerised ocean cargo
Confusable Terms #
- FOB vs CIF
- under CIF the seller also contracts and pays the main freight and insurance, yet risk still transfers at the same on-board point; the difference is cost allocation, not risk timing.
- FOB vs EXW
- under EXW the buyer collects the goods at the seller's premises and the seller has no export clearance duty; under FOB the seller must clear the export and put the goods on board the vessel.
Frequently Asked Questions
Who pays the ocean freight under FOB?
The buyer. The buyer nominates the vessel (or instructs a forwarder) and pays the main carriage; the seller's duty ends with delivering the goods on board at the port of shipment.
Is FOB suitable for air or rail freight?
No. FOB is restricted to sea and inland waterway transport; for air, rail or multimodal shipments use FCA, which also fits containerised ocean cargo better.
What does "FOB value" mean on a customs invoice?
It is the value of the goods at the port of shipment — the invoice price before ocean freight and insurance are added. Customs authorities commonly ask for it to compute duties.
Published: 2026-08-05 Category: Incoterms