FOB (Free On Board) — Free On Board at the Port of Shipment
FOB is one of the most commonly used international trade terms under Incoterms® 2020. In Chinese, it is commonly translated as (Free On Board).
Core Meaning
FOB + Named Port of Shipment — for example, FOB Shanghai (CNSHA). The seller delivers the goods to the agreed port of shipment and loads them on board the vessel. Once the goods are on board the vessel:
- ✅ Risk transfers: Once the goods are loaded on board, the risk of loss or damage transfers from the seller to the buyer.
- ✅ Cost boundary:
- Seller bears: All costs from the factory to the port of shipment, including export customs clearance and costs incurred before the goods are loaded on board.
- Buyer bears: Ocean freight, marine insurance, and all costs after loading on board, as well as import customs clearance and cargo pickup at the destination port.
In Simple Terms
FOB Shanghai: The Chinese seller is responsible for delivering the goods to Shanghai Port and loading them on board the vessel. The overseas buyer arranges and pays for the ocean freight and marine insurance.
Relationship with UN/LOCODE
FOB should be followed by a named port of shipment. Many ports around the world have similar or identical names, and using only the port name can lead to errors in contracts, letters of credit, and shipping documents.
Using the 5-character UN/LOCODE, such as CNSHA for Shanghai, together with the port name in contracts, bills of lading, and letters of credit can precisely identify the FOB delivery location and help avoid trade disputes.
Key Responsibilities Under FOB
Seller's Responsibilities
- Complete export customs clearance
- Deliver the goods to the agreed port of shipment
- Load the goods on board the vessel nominated by the buyer
- Not responsible for ocean freight
- Not required to purchase marine insurance
Buyer's Responsibilities
- Arrange the vessel/booking and pay the ocean freight
- Purchase marine insurance
- Bear all risks and costs once the goods are loaded on board
- Handle import customs clearance and cargo pickup at the destination port
Common Misconceptions
- ❌ FOB is not a “landed price.” CIF includes freight and insurance; FOB only covers delivery on board the vessel and does not include ocean freight or insurance.
- ❌ FOB is only applicable to sea or inland waterway transport. It should not be used for air freight, courier services, or rail transport.
- ❌ The FOB location is the port of shipment (export port), not the destination port.
Quick Comparison
- FOB: Buyer pays the ocean freight
- CIF: Seller pays the ocean freight + marine insurance