Incoterm FOB explained

What is Incoterm FOB?
If goods need to be transported by water (sea or inland waterways), Incoterm FOB can be agreed upon. The seller delivers the goods to a pre-arranged vessel at a port. Incoterm FOB is one of the oldest Incoterms still in existence. In the past, this Incoterm was already used when transporting goods via sailing ships. To this day, it is one of the most widely used Incoterms for transporting goods by water.

Incoterm FOB meaning
FOB means "Free on Board. The seller delivers the goods at the agreed port of destination. Often this is on a ship. Until this time, the seller bears all risk of loss and damage to the goods. FOB is suitable for transporting both bulk and containerized goods.

FOB transportation
Incoterm FOB can be agreed upon if you as a carrier like to have control over the carrier. This is because the seller takes care of arranging and paying for the transportation to the agreed vessel. FOB can only be agreed when transporting by sea or inland waterways. Neither party is required to provide insurance for the goods.

Incoterm FOB costs
With Incoterm FOB, the seller is responsible for most of the costs. For example, he pays all the costs of transportation up to the ship at the agreed port. Another important aspect with FOB is the method of payment. In fact, FOB is not the best choice for international payments via Letter of Credit. In this case, the payment is made through corresponding commercial documents (such as a Bill of Lading) that the seller has to deliver to the bank. This document is very important because in its absence there is a chance that the bank will not pay out. The problem is that the seller is not responsible for the sea transport so he cannot provide a Bill of Lading.

Seller's obligations when FOB
The seller is obliged to load the goods on board the vessel chosen by the buyer. This ship is in a port chosen by the buyer. Hereby, the risk of damage and/or loss of the goods until the time of delivery (until the goods are loaded on board the chosen ship in the shipping) lies with the selling party. The cost of transportation up to the ship is also the seller's responsibility. In addition, as the seller, you arrange all the documents you need to export the goods, such as an export license, customs formalities and any taxes.

Buyer's obligations under FOB
The risk is transferred to the buyer when the goods are loaded onto the agreed vessel. Loss or damage is now the risk of the buyer during water transport. Any further transport is also paid for by the buyer. In addition, the buyer is responsible for all documents and costs associated with importing the goods. Think of import taxes and related customs formalities.

Incoterm FOB vs. FCA
FOBwas always a commonly used Incoterm, but because it is difficult to make international payments with FOB, many people have switched to FCA. Incoterm FCA is much more suitable for international payments because it allows goods to be delivered with a Bill of Lading. If you would like to trade internationally, FOB is not the best Incoterm, but rather choose Incoterm FCA.

Sea freight or air freight shipments with customs obligation?
Global shipments and shipments within Europe to/from non-EU countries are subject to customs obligations. What measures do you need to take and what documents are required? With the knowledge and experience of our specialists in the Rotra customs department, we are able to provide solutions for all your customs obligations that fit your logistics process while you focus on your own core business. For more info contact us directly.