FOB logistics - What does it mean and when to use it?

What does FOB mean?

FOB logistics or Free On Board is a shipping term that refers to the point at which the buyer takes over responsibility for goods being transported, after the seller has delivered them to a vessel (a boat or ship).

Once the goods are loaded on board, the buyer is responsible for all costs and associated risks. It’s not about the transfer of ownership, but the transfer of responsibility and costs.

FOB is strictly for goods transported by sea or inland waterway (canals, lakes, non-tidal rivers etc).

Free On Board (often mistakenly called Freight On Board or Freight On Board shipping) is part of the Incoterms (International Commercial Terms) used to define global trade rules.

In this guide, we’ll break down that definition, and explain why companies would want to use FOB shipping. 

What does the FOB Incoterm dictate?

It’s useful to explain what Incoterms are first. You should think of Incoterms as a kind of universal rulebook for international shipping that dictates who does what and when. The rules help everyone play fair when trading across borders, and keep everyone’s role nice and clear from the outset.

The FOB Incoterm effectively means that the seller’s role is to get the goods on the ship, and the buyer handles the rest. A bit like the baton pass in a relay race, it’s a hand-off of the risks, costs and responsibilities involved in shipping goods.

For example, you might see it expressed as 'FOB Rotterdam’, which means the seller is responsible for getting the goods to the port of Rotterdam and loading them safely onto the ship. From that point onwards, the buyer takes over all costs and risks.

Pro tip: ‘FOB Rotterdam’ or ‘FOB Shenzhen’ is shorthand used to describe the agreed shipping terms in a deal. It’s not an off-the-shelf product or service (though it does sound one), it’s just the location where responsibility transfers from the seller to the buyer. The types of costs taken on by the buyer after the 'baton pass' are:

• Shipping and import charges and taxes

• Insurance

• Unloading fees at the destination

• Inland transport to the delivery point

And some of the risks involved:

• Damage or loss in transit

• Delays caused by port congestion or weather

• Cargo being held at customs

• Storage charges or penalties

Top Tip: Always include the FOB terms clearly in your contracts, quotes, and invoices. This protects both parties and avoids disputes over who pays for what.

FOB Shipping Obligations

FOB shipping obligations refer to the specific responsibilities that both the seller and buyer agree to when using the Free On Board (FOB) Incoterm. Here’s a breakdown of what they usually mean:

Obligations of the seller

The seller is usually responsible for:

• Packaging & preparing goods for export.

• Transporting goods to the named port of shipment.

• Clearing the goods for export & any paperwork.

• Loading the goods onto the vessel nominated by the buyer.

• Providing the buyer with proof of delivery.

• The seller’s responsibility ends once the goods are loaded on the ship.

Obligations of the buyer

The buyer is usually responsible for:

• Paying for goods as specified in the sales contract

• Choosing the vessel and informing the seller.

• Paying for the main carriage (ocean freight) from the port onwards.

• Arranging insurance (optional but recommended).

• Handling import customs at the destination.

• Paying import taxes and final delivery costs.

While Incoterms like FOB provide a standard structure, specific responsibilities can vary if clearly outlined in the sales contract. Always review the agreement carefully to understand who’s handling what.

When should FOB shipping be used?

Now we’ve established what FOB logistics is, you might be wondering when you’d most likely want to use it. 

Buyers may choose FOB to control shipping, reduce costs, and manage risks, while sellers may prefer FOB to ensure smooth delivery and minimise potential buyer complications.

Here are a few examples of typical FOB shipping use cases:

• A tech company in Japan opts for FOB shipping to select a faster, more reliable shipping carrier, ensuring timely arrival of critical parts for manufacturing.

• A large distributor in Australia chooses FOB to reduce shipping costs by partnering directly with a preferred freight forwarder, benefiting from volume discounts.

• A medical supplies company in Canada uses FOB to ensure the supplier handles all customs clearance and paperwork, reducing the risk of delays or mistakes on their end.

• A supplier chooses FOB to simplify logistics for the customer, ensuring delivery to the buyer’s warehouse and making the sale more attractive.
  

Is FOB shipping for me?

View the SEKO Guide to Incoterms

SEKO has over 30 years of expertise in international shipping, logistics and supply chain management, so you can trust in us to guide you when it comes to shipping.

To help you continue learning about Incoterms, we’ve created a larger guide on the topic, which addresses several Incoterms questions and provides deeper knowledge of each Incoterm. Take Me To The Incoterms Guide.