Free On Board

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

This 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.

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", and 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 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.

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 Navigation Co. Ltd., Justice Devlin, ruling on a matter relating to liability under an FOB contract, described the situation thus:

Only the most enthusiastic lawyer could watch with satisfaction the spectacle of liabilities shifting uneasily as the cargo sways at the end of a derrick across a notional perpendicular projecting from the ship's rail.

In the modern era of containerization, the term "ship's rail" is somewhat archaic for trade purposes, as with a sealed shipping container there is no way of establishing when damage occurred after the container has been sealed. The standards have noted this. Incoterms 1990 stated, "When the ship's rail serves no practical purpose, such as in the case of roll-on/roll-off or container traffic, the FCA term is more appropriate to use." Incoterms 2000 adopted the wording, "If the parties do not intend to deliver the goods across the ship's rail, the FCA term should be used." The criterion passing the ship's rail is no longer in use, having been dropped from the FOB Incoterm in the 2010 revision.

...
Wikipedia