FOB (shipping)

FOB, "Free On Board", is a term in international commercial law specifying at what point respective obligations, costs, and risk involved in the delivery of goods shift from the seller to the buyer under the Incoterms 2010 standard published by the International Chamber of Commerce. FOB is only used in non-containerized sea freight or inland waterway transport. FOB terms do not define transfer of ownership of the goods.

The term FOB is also used in modern domestic shipping within the USA to describe the point at which a seller is no longer responsible for shipping cost.

Ownership of a cargo is independent from Incoterms. In international trade, ownership of the cargo is defined by the bill of lading or waybill.

Under the Incoterms 2010 standard published by the International Chamber of Commerce, FOB is only used in sea freight and stands for "Free On Board". The term is always used in conjunction with a port of loading.

Indicating "FOB port" means that the seller pays for transportation of the goods to the port of shipment, plus loading costs. The buyer pays the cost of marine freight transport, insurance, unloading, and transportation from the arrival port to the final destination. The passing of risks occurs when the goods are loaded on board at the port of shipment. For example, "FOB Vancouver" indicates that the seller will pay for transportation of the goods to the port of Vancouver, and the cost of loading the goods on to the cargo ship (this includes inland haulage, customs clearance, origin documentation charges, demurrage if any, origin port handling charges, in this case Vancouver). The buyer pays for all costs beyond that point, including unloading. Responsibility for the goods is with the seller until the goods are loaded on board the ship. Once the cargo is on board, the buyer assumes the risk.

The use of "FOB" originated in the days of sailing ships. When the ICC first wrote their guidelines for the use of the term in 1936, the ship's rail was still relevant, as goods were often passed over the rail by hand. In 1954, in the case of Pyrene Co. Ltd. v. Scindia Steam Navigation Co. Ltd.,Justice Devlin, ruling on a matter relating to liability under an FOB contract, described the situation thus:

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