Why free on board (FOB) matters to a first-time founder
FOB determines where delivery and risk transfer from seller to buyer, which affects insurance, freight arrangements and disputes over damaged goods. Under Incoterms 2020, the seller clears the goods for export and loads them on the nominated vessel. The buyer arranges the main carriage and bears risk from that point.
Examples of free on board (FOB)
A UK buyer purchases machinery FOB Shanghai. The seller transports and export-clears it, then loads it aboard the vessel nominated by the buyer. Risk transfers when the machinery is on board. The buyer pays for the ocean freight and insurance afterwards, even though the seller handled the earlier export steps.
Common misunderstanding
FOB does not mean the seller pays every cost until the goods reach the buyer, and it should not be used for air freight. Incoterms allocate tasks, costs and risk; they do not set price, payment timing or ownership transfer. Container shipments handed to a carrier before loading may suit another rule better.
When to use it
Use FOB in a contract for suitable bulk or non-containerised goods moving by sea or inland waterway when the buyer can nominate the vessel. State the named port of shipment and applicable Incoterms edition. Ask a freight specialist about containerised cargo or unfamiliar routes rather than choosing FOB from habit.