FOB (Free On Board)
Definition
FOB (Free On Board) is an Incoterms® 2020 rule for sea and inland waterway transport. The seller delivers when the goods are on board the vessel the buyer has nominated at the named port of shipment, and the risk passes to the buyer at that moment. The seller handles export clearance; the buyer pays the main freight, insurance and import costs.
By Naim Islam
Published 2 min read
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In practice
Reading an "FOB Chattogram" quote
When a Bangladeshi supplier quotes "FOB Chattogram", the named port is Chattogram, the country's main seaport, run by the Chittagong Port Authority1. The seller's delivery is complete when the goods are loaded on board the vessel you nominated there, and from that moment any loss or damage is your risk2. For a contract, write the full term with the edition, for example "FOB Chattogram Incoterms® 2020", as ICC recommends3.
What an FOB price includes
An FOB price covers the goods plus the supplier's local costs: transport to the port of shipment, loading, and export customs clearance in Bangladesh4 5. Everything after loading is yours: ocean freight, cargo insurance if you want it, unloading and transport from the arrival port4, and import clearance and duty in your country5.
This is why FOB suits a buyer who works with a freight forwarder. You choose the carrier, see the freight cost as a separate line and decide on insurance yourself. To compare an FOB offer with a CIF or delivered price, add the freight, insurance and destination costs you will pay, as shown in the landed cost guide.
When FCA fits better than FOB
FOB is only for sea and inland waterway transport5. It does not suit air freight, and it can be a poor fit for container cargo that the supplier hands to the carrier at a terminal or depot before it is loaded. In that case the supplier has given up control of the goods, but under FOB the risk would stay with it until the goods are on board.
ICC introduced the Free Carrier term for this situation, where goods are received at a point on shore such as a container yard rather than at the ship's side6. In Incoterms® 2020, FCA also lets the parties agree that the buyer will instruct its carrier to issue an on-board bill of lading to the seller, which matters when a bank asks for one7. If your goods move in containers handed over before loading, ask your forwarder whether "FCA" with a named terminal describes the handover more accurately.
Related terms
CIF (Cost, Insurance and Freight): delivery on board as under FOB, but the seller also pays freight and minimum insurance to the destination port.
EXW (Ex Works): the seller only makes the goods available at its premises.
Incoterms® rules for shipments from Bangladesh: FOB, CIF, EXW and DAP compared.
Incoterms® is a trademark of the International Chamber of Commerce. This entry summarizes the rule in our own words and is not the official text.
Sources
- পটভূমি ও কার্যক্রম (Background and activities). Chittagong Port Authority (accessed )
- Customs valuation: Incoterms. HM Revenue & Customs (GOV.UK) (accessed )
- Incoterms® rules trademark and copyright policy. International Chamber of Commerce (ICC) (accessed )
- Guide to import goods. European Commission, Access2Markets (accessed )
- Guidance Note: Using the Incoterms® 2020 Rules to Manage Tariff Risk in International Trade. International Chamber of Commerce (ICC) (accessed )
- Incoterms® Rules history. International Chamber of Commerce (ICC) (accessed )
- Incoterms® 2020. International Chamber of Commerce (ICC) (accessed )
Reviewed by Nourin Tabassum
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