What does the Incoterm FOB mean?

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When goods are shipped with the condition Free on Board (FOB), the seller is responsible for preparing the goods for shipping and loading them onto the ship for transport.  The buyer is then responsible for paying the cost of transportation and any fees imposed at the eventual port of call.  Insurance, if necessary, is also the buyer’s responsibility, as the risk of loss transfers to the buyer upon the seller loading the goods onto the transport.  The term FOB can only be used in situations where goods are being shipped by land or sea.

FOB is one of the more common Incoterms used in purchase and sale agreements.  This term tends to be one of the simpler Interterms to apply and distributes the responsibility between the buyer and seller in a relatively even fashion.  It makes logistical and practical sense to have the seller be responsible for the goods up until the moment of shipment and having the risk of loss shift at the port of loading allows for a clean division of responsibility that is easy to understand by both parties.

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