Hi. World Trade Center
HIWTC - The Successful Place Of Manufacturers & Exporters

What is FOB

FOB stands for "Free On Board", FOB specifies which party (buyer or seller) pays for which shipment and loading costs, and/or where responsibility for the goods is transferred, it is always used in conjunction with a port of loading. Indicating "FOB port" means that the seller pays for transportation of the goods to the port of shipment, plus loading costs. The buyer pays cost of marine freight transport, insurance, unloading, and transportation from the arrival port to the final destination. The passing of risks occurs when the goods pass the ship's rail at the port of shipment.

For example, "FOB Shanghai" indicates that the seller will pay for transportation of the goods from their factory to the port of Shanghai, and the cost of loading the goods on to the cargo ship (this includes inland haulage, Customs clearance, origin documentation charges, demurrage if any, origin Port handling charges, in this case Shanghai). The buyer pays for all costs beyond that point (including unloading). Responsibility for the goods is with the seller until the goods pass the ship's rail. Once the cargo is off of the ship, the buyer assumes risk.

Due to potential confusion with domestic North American usage of "FOB", it is recommended that the use of Incoterms be explicitly specified, along with the edition of the standard. For example, "FOB Shenzhen (Incoterms 2000)". Incoterms apply primarily to international trade, not domestic trade within a given country.

This use of "FOB" originated in the days of sailing ships. When the ICC first wrote their guidelines for the use of the term in 1936, the ship's rail was often still relevant, as goods were often passed over the rail by hand. In the modern era of containerization, the term "ship's rail" is somewhat archaic for trade purposes. The standards have noted this. Incoterms 1990 stated, "When the ship's rail serves no practical purpose, such as in the case of roll-on/roll-off or container traffic, the FCA term is more appropriate to use." Incoterms 2000 adopted the wording, "If the parties do not intend to deliver the goods across the ship's rail, the FCA term should be used."
About HIWTC | Advertising | Career | Disclaimer | Privacy Protection | Contact Us | Home
© 1998 - 2014  Hi. World Trade Center