FOB is an international trade term where the seller’s responsibility ends once goods are loaded onto a ship at the specified port of shipment. The buyer assumes all costs (freight, insurance, import taxes) and risks after the goods cross the ship’s rail.
FOB is a widely used international trade term under INCOTERMS®. It requires the seller to deliver goods onto a vessel at the specified port of shipment and handle export customs. The buyer assumes responsibility for all costs (freight, insurance, import taxes) and risks once the goods pass the ship’s rail.
Example Scenario
A Chinese seller in Shanghai sells 1,000 bicycles to a U.S. buyer using FOB Shanghai:
Seller’s actions:
- Delivers the bicycles to Shanghai Port.
- Arranges loading onto the ship and completes Chinese export paperwork.
- Provides the buyer with shipping documents (e.g., bill of lading).
Buyer’s actions:
- Pays for ocean freight from Shanghai to Los Angeles.
- Purchases marine insurance for the journey.
- Handles U.S. import customs, pays duties/VAT, and arranges delivery to their warehouse.
Key Highlights
- Seller’s obligations: Load goods onto the ship, export clearance, and shipping docs.
- Buyer’s obligations: Post-shipment costs (freight, insurance, taxes) and destination logistics.
- Risk transfer: Occurs at the port of loading (when goods cross the ship’s rail).
- Ideal for: Buyers preferring control over international logistics but willing to manage post-shipment costs.
