Incoterms are the official International Chamber of Commerce (ICC) rules for the explanation of trade terms. Incoterms 2010 are adhered to by all major trading nations of the world, and it is the authoritative text for determining how costs and risks are allocated to the parties conducting international transactions. Incoterms facilitate the conduct of international business by defining the responsibilities of the involved participants.
This is the seventh article in our series investigating the basic meaning of all 11 Incoterms. We’ve also covered the following:
- Free Carrier (FCA)
- Delivered At Place (DAP)
- Delivered Duty Paid (DDP)
- Carriage Paid To (CPT)
- Cost, Insurance and Freight (CIF)
- Carriage and Insurance Paid To (CIP)
Today, we’re discussing the Incoterm FOB, also known as Free On Board.
To learn more about which trade term is the best for your export,
check out this chart of responsibilities.
What Does the Free On Board (FOB) Trade Term Mean?
FOB means “the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered.” (ICC)
When Can FOB Be Used?
FOB can be used only for ocean vessels.
- With FOB, the seller delivers goods, cleared for export, loaded on board the vessel at the named port.
- Risk passes when the goods are on board the vessel, and the buyer bears all costs from that moment onward.
- Watch out when using FOB, as it is often misused in exporting. The United States’ UCC permits the use of FOB here, there and everywhere. However, Incoterms 2010 restricts the use of FOB to ocean shipments only.
Learn More about Incoterms and FOB
Looking for more information about Incoterms? Check out the archive of Incoterms-related articles on our International Trade Blog.
To get you started, we’ve chosen several of our most popular articles along with other industry resources:
- The Beginner's Introduction to Incoterms
- An Introduction to Incoterms—Part 2: Why Do Incoterms Matter?
- A Behind the Scenes Look at Incoterms
- Incoterms 2010 Freight and Associated Charges
- From EXW to DDP: Incoterms 2010 Plain and Simple
- Incoterms Lesson: The Danger of Using Ex Works for Your Exports
- Incoterms 2010 and the UCC: A Guide to International and Domestic Terms of Sale
- Incoterms 2010
Shipping Solutions export software can help you streamline the process of recording which Incoterms version you’re using and make sure your documentation is correct throughout the transaction. You can try it for free today!