Whether you’re buying or selling goods, it pays to understand your Incoterms®. These three-letter designations act as a shortcut to outline which transportation costs will be paid for by the buyer and the seller. Different Incoterms will mean different expenses for both parties, so it’s important to get yours straight before signing any contracts. Let’s take a look at the FOB Incoterm.
What Does FOB Mean?
FOB stands for Free on Board. Along with FAS, CFR, and CIF, it’s one of four Incoterms that applies only to shipments that move via sea and inland waterway.
Under the FOB Incoterm, the seller pays for all the costs up to and including loading the shipment on a ship of the buyer’s choosing. To the buyer, the goods are “free” on board—an easy way to remember the meaning of this Incoterm.
Once the goods are loaded onboard the vessel, the buyer is responsible for all the costs going forward to get the shipment to its final destination.
The FOB Incoterm is part of both the 2010 and 2020 Incoterms rules. However, a change to the FCA 2020 Incoterms rule means that you may want to consider using FCA instead of FOB. We’ll give you all the details below.