There are many different Incoterms to know, and some can feel confusing. For example, there are three that begin with the word, “Free,” but they’re not technically free! Rather, it describes what the buyer is responsible for in international trade, namely around imports and exports. There are similar differences between Free Alongside Ship (FAS) and Free Carrier (FCA). Here are the facts of what Free On Board really means, when to use it, its potential drawbacks, and how you can make it easier to leverage not only this but all Incoterms in the future.
FOB, or Free On Board, is an Incoterm that stipulates the seller is responsible for delivering the goods on board a vessel designated by the buyer. This responsibility includes all costs and risks up to the point of loading the goods onto the ship. Once the goods have crossed the ship's rail at the specified port of loading, the risk and responsibility shift from the seller to the buyer. This clear distinction of responsibility makes FOB a preferred term for many international traders.
Of course, it's crucial to note that the use of FOB is restricted to goods transported by sea or inland waterway. This limitation underscores the term's relevance to traditional shipping routes and methods, distinguishing it from other Incoterms that might apply to various modes of transport, including air, rail, and road.
Furthermore, Free On Board names a specific place of loading, which is technically the place of delivery. Essentially, the seller is responsible for getting the goods to the place of delivery–on board the vessel. In so doing, the buyer loses control over the port and terminal or other preferences for transportation.
The choice of port can affect the cost, timing, and logistics of the shipment, making it a critical consideration for both parties in the negotiation process.
Did you know? The named place for using the Free On Board Incoterms rule is always the loading port.
While FOB is a widely used Incoterm that clearly delineates the responsibilities of buyers and sellers in international trade, it is not without its drawbacks, especially for the buyer. Once the goods are loaded onto the vessel, the buyer assumes all risks and responsibilities, which can lead to several challenges, including the following:
With all incoterms, it is important to understand the obligations of both the buyer and seller. Eleven incoterms cover international shipments. Are you aware of all the different options? The Crane Worldwide Logistics team understands the variety and complexity of each possible Incoterm, and our team is here to help you choose the right one for every load.
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With all incoterms it is important to understand the obligations of both the buyer and seller. There are eleven incoterms covering international shipments, are you aware of all the different options? If you need shipment support, please reach out to the team!
FREE DOWNLOAD: You can download our free Incoterms chart which provides simple explanations of all eleven incoterms here
Click below for more information on shipping terms:
FCA (Free Carrier)
CPT (Carriage Paid To)
CIP (Carriage and Insurance Paid To)
DAP (Delivered at Place)
DPU (Delivered at Place Unloaded)
DDP (Delivered Duty Paid)
FAS (Free Alongside Ship)
FOB (Free On Board)
CFR (Cost And Freight)
CIF (Cost, Insurance And Freight)