Free on board (FOB)
Free on board (FOB) is a trade term indicating the point at which the costs and risks of transporting goods shift from the seller to the buyer. This means that the seller is responsible for all costs associated with delivering the goods to a specified location, typically a port or warehouse, and loading them onto a vessel for transportation. Once the goods are loaded onto the vessel, ownership and liability transfer to the buyer.
For example, if a seller in China agrees to sell goods to a buyer in the United States on an FOB basis, the seller is responsible for delivering the goods to the port in China and loading them onto a ship. Once the goods are on board the ship, the buyer assumes responsibility for any damages or losses that may occur during transit.
It is important for buyers and sellers to clearly define the terms of the FOB agreement in their contract, including the specific location where the transfer of responsibility occurs, the method of transportation, and any additional costs that may be incurred.
- Benefits of FOB: FOB can help simplify the shipping process and reduce the risk of disputes between buyers and sellers.
- Drawbacks of FOB: FOB does not cover insurance or other costs associated with transporting the goods to their final destination.
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