FOB is a shipping acronym for Free on Board. It identifies the delivery responsibilities of the buyer and seller and helps establish which party bears the risk of loss or damage during shipping.
FOB stands for Free on Board. FOB outlines the delivery responsibilities of both the buyer and the seller. It helps buyers and sellers understand where the seller's delivery responsibility ends and who bears the risk if goods are lost or damaged during shipping.
To determine delivery responsibility and who bears the risk, two terms are usually found on U.S. purchase orders, sales agreements, and invoices: FOB Shipping Point (FOB Origin) and FOB Destination. Another important term is the delivery point. This is the mutually agreed location where the seller completes delivery.
When FOB Shipping Point is specified, the buyer bears the risk of loss or damage once the seller has properly delivered the goods to the carrier. §2-504 §2-319 §2-509. Now, take for example, ABC Motors, a car dealership based in New York. The company sells a car to a buyer in Atlanta and arranges to ship it from New York. If the agreed delivery point is the shipping point Shipping point: The agreed location where the seller hands the goods to the transport carrier, often the seller’s warehouse or loading location. in New York, the buyer generally bears the risk once the car is properly handed to the carrierCarrier: The trucking company or other transport business that moves the goods from the seller toward the buyer..
In the case of FOB Destination, the seller bears that risk until the goods are properly presented for delivery at the agreed destination. §2-319 §2-509 Using the same example, if the agreed delivery point is the destination in Atlanta, ABC Motors generally bears the risk during the transit, until the car is properly presented for delivery.
These are two U.S. delivery terms that determine where delivery occurs, who bears transit risk, and who normally pays freight.
The table below shows the usual rules when the buyer and seller have not agreed to different terms.
| Question | FOB Shipping Point / FOB Origin | FOB Destination |
|---|---|---|
| What is the seller's responsibility? | The seller must properly hand the goods to the carrier at the shipping point. | The seller must get the goods to the agreed destination and properly present them for delivery. |
| Who bears the risk during shipping? | The buyer bears the risk once the seller properly hands the goods to the carrier. | The seller bears the risk until the goods are properly presented for delivery at the agreed destination. |
| Who normally pays for shipping? | The seller pays to get the goods to the carrier. The buyer generally pays for shipping from the shipping point. | The seller generally pays for shipping to the agreed destination. |
| If the truck crashes during transit, who bears the loss? | The loss is generally borne by the buyer. | The loss is generally borne by the seller. |
What if the car arrives damaged? Suppose the carrier scratches the car during the trip. With FOB Shipping Point, the buyer generally bears that accidental transit risk after proper handoff in New York. With FOB Destination, ABC Motors generally bears it until proper tender in Atlanta. A claim against the carrier may still be possible; the FOB term alone does not settle that claim.
What should the buyer do next? Make sure to record the damage on the delivery paperwork, take clear photos, and preserve the carrier records. You must also notify the seller and carrier promptly. The parties should check the sales agreement and bill of lading to find out who can pursue a carrier claim. The party bearing transit risk is not automatically the party entitled to recover from the carrier.
What does “properly” mean? The seller must meet the applicable delivery requirements. For a shipment contract, this can include making reasonable transportation arrangements and notifying the buyer.
Once the buyer and seller have agreed to the delivery point, the next decision is who pays the freight. The party that pays the freight is not necessarily the party that bears the risk of loss or damage during transit.The table below explains six common FOB freight arrangements, showing who the carrier bills, who ultimately pays the freight costs, and who bears the transit risk.
This chart shows six common FOB freight arrangements, including who the carrier bills, who typically pays the freight cost, and when shipping risk transfers.
| FOB Freight Terms | Carrier Bills | Freight Cost Usually Paid By | Transit Risk |
|---|---|---|---|
| FOB Origin / Shipping Point | |||
| FOB Origin, Freight Collect | Buyer | Buyer | The buyer bears the risk once the seller properly hands the goods to the carrier. |
| FOB Origin, Freight Prepaid | Seller | The seller pays unless otherwise agreed. | The buyer bears the risk once the seller properly hands the goods to the carrier. |
| FOB Origin, Freight Prepaid & Add | Seller | The buyer pays through a freight charge added to the seller's invoice. | The buyer bears the risk once the seller properly hands the goods to the carrier. |
| FOB Freight Terms | Carrier Bills | Freight Cost Usually Paid By | Transit Risk |
| FOB Destination | |||
| FOB Destination, Freight Prepaid | Seller | Seller | The seller bears the risk until the goods are properly presented for delivery at the agreed destination. |
| FOB Destination, Freight Collect | Buyer | Buyer pays the carrier; who ultimately bears the expense depends on the sales agreement. Under the usual U.S. FOB Destination rule, the seller bears transportation expense unless otherwise agreed. | The seller bears the risk until the goods are properly presented for delivery at the agreed destination. |
| FOB Destination, Freight Collect & Allowed | Buyer | The seller covers the freight cost by giving the buyer a credit or deduction. | The seller bears the risk until the goods are properly presented for delivery at the agreed destination. |
Common U.S. domestic freight arrangements. Carrier billing, ultimate freight expense, and transit risk are separate matters. The sales agreement and applicable law control.
Example: a $400 car-transport bill. ABC Motors sends a car from New York to Atlanta. With Prepaid & Add, ABC Motors pays the carrier $400 and includes that charge on the buyer's invoice. With Collect & Allowed, the buyer pays the carrier but receives an agreed $400 allowance from ABC Motors. That's why the carrier's bill and the party ultimately paying for shipping aren't always the same.
FOB terms commonly appear on purchase orders, sales agreements, bills of lading, and invoices. The table below explains what to look for in each document.
| Document | What to look for | What it tells you |
|---|---|---|
| 1Purchase Order / Sales Agreement |
|
Establishes the agreed delivery terms and commercial responsibilities between buyer and seller. |
| 2Bill of Lading (BOL) |
|
Identifies carrier billing instructions and shipment particulars; does not automatically override the sales agreement. |
| 3Commercial Invoice |
|
Shows the commercial price and invoiced charges; check against the agreed delivery terms. |
| 4Carrier Freight Invoice |
|
Shows whom the carrier billed and which transportation charges were assessed. |
FOB delivery terms and carrier billing instructions answer different questions.
Check the sales agreement before assigning freight costs or transit risk.
The four points below explain who bears the risk, who owns the goods, who is responsible for damage, and whether the shipment is insured.
The buyer or seller bears the risk according to the agreed shipping terms and applicable rules.
Ownership depends on the sales agreement and applicable law. International FOB does not determine ownership.
Carrier liability depends on transportation agreements, applicable rules, and liability limits.
Coverage depends on whether cargo insurance was purchased and what the policy covers.
FOB helps establish delivery obligations and risk transfer. It does not automatically settle ownership, carrier liability, or cargo insurance.
Important: The examples on this page describe standard shipping arrangements. A sales contract, applicable law or a specific exception may change the outcome for an individual shipment.
No. FOB does not automatically include cargo insurance. The party bearing transit risk should consider arranging appropriate coverage for loss or damage. Insurance protection depends on the policy’s terms, limits, and exclusions.
Not necessarily. Ownership and risk of loss are separate questions. U.S. domestic FOB terms may help establish when ownership passes, subject to the sales agreement and applicable law. §2-401 International FOB under Incoterms® 2020 does not determine ownership.
Under FOB Shipping Point, the buyer generally bears accidental transit risk after the seller properly delivers the goods to the carrier. That does not automatically determine who may bring a claim against the carrier. The bill of lading, transportation agreement, applicable law and the parties’ rights determine who can pursue recovery. Buyer and seller should confirm which party will handle the claim.
No. Not automatically. A liftgate service, driver waiting time (detention), and unloading may generate additional charges. FOB Destination sets out delivery obligations, but it does not by itself specify every accessorial service or establish the amount of each acrrued fee. Make sure to check the sales agreement and transportation quote to confirm who authorizes and pays for these services.
U.S. domestic FOB Shipping Point and FOB Destination terms can also apply to shipments moved by air or truck, because those terms follow a different legal framework.
Goods shipped under FOB Shipping Point are often recorded in the buyer’s inventory after the seller properly delivers them to the carrier. Under FOB Destination, they often remain in the seller’s inventory until delivery at the agreed destination. Actual recognition depends on the contract, the substance of the transaction and the accounting standards used; risk transfer and legal title are relevant but are not always the only tests.
International FOB (Free on Board) is an international trade term established by the International Chamber of Commerce (ICC) under Incoterms® 2020. It applies to sea/ocean and inland waterway shipping. Under FOB (Incoterms® 2020), the seller must deliver the goods on board the vessel at the agreed port of shipment. Once the goods are on board, the buyer bears the risk of loss or damage during the remaining transit.
For example, ABC Motors is a car dealership in New York that exports a car to a buyer in Mumbai, India. Under FOB New York — Incoterms® 2020 Incoterms® 2020: International trade rules that explain the delivery duties, costs, and shipping risks agreed between buyer and seller., ABC Motors completes delivery when the car is loaded on board the vessel at the agreed port of shipment in New York. From that point, the buyer generally bears the risk of loss or damage during the ocean journey to Mumbai. The risk does not wait until the car arrives in India. Incoterms® 2020
Is international FOB the same as FOB Origin? They are similar, but not identical. Under U.S. FOB Origin, risk generally passes when the goods are properly handed to the carrier. Under international FOB, risk passes when the goods are loaded on board the vessel at the departure port.
An international FOB term names the port where the goods are loaded, followed by the Incoterms edition. ABC Motors ships a car from New York to Mumbai under FOB New York — Incoterms® 2020. ABC Motors clears it for export and arranges loading onto the buyer’s nominated vessel. The buyer arranges and pays for the ocean trip to Mumbai. In some commodity trades, FOB also permits delivery by procuring goods already on board.
An international quote marked “FOB Los Angeles” should identify Los Angeles as the port of loading.
| Shipping Costs & Services | Who Pays or Is Responsible |
|---|---|
| Export packing, origin movement and export clearance | The seller covers these costs through loading the goods onto the vessel. |
| Port handling and loading before goods are on board | The seller pays to get the goods on board. Check which port fees are included. |
| Main ocean carriage and optional marine insurance | The buyer arranges and pays for the main ocean carriage and decides whether to purchase marine cargo insurance. |
| Destination charges, import clearance, duties and final delivery | The buyer generally pays these costs. The exact charges depend on the arrangements at the destination. |
Under international FOB (Incoterms® 2020), the FOB price includes the cost of the goods and the seller's expenses to get them loaded on board the vessel at the agreed port of shipment. It does not include the main ocean freight, marine cargo insurance, or any additional costs incurred at the destination.
Continuing our New York-to-Mumbai example, suppose ABC Motors quotes the buyer $8,600 FOB New York for a used car. The chart below breaks down that quotation and shows which additional shipping costs the buyer must budget for.
| Car priceUsed car, per sales contract | $8,000 |
|---|---|
| Transport to export portVehicle transport to the agreed departure port | $250 |
| Export clearance and handlingExport documentation and fees | $150 |
| Port loading costsVehicle handling and loading onto the vessel | $200 |
| Total FOB quotation | $8,600 |
This is an illustrative commercial FOB quotation under Incoterms® 2020, not a universal pricing formula.
For ABC Motors’ FOB New York — Incoterms® 2020 quotation, the Mumbai buyer should confirm which New York terminal, handling, and vessel-loading charges are included in the $8,600. The buyer can then compare those charges with the freight forwarder’s ocean-shipping quote to avoid paying twice for the same service.
A supplier’s FOB selling price may also differ from the value customs authorities require for import or export declarations.
How is FOB value calculated for exports? For a commercial FOB quotation, start with the goods price and include the agreed seller costs through vessel loading, without counting any charge twice.
FOB value for customs purposes: Customs authorities may use different valuation rules when determining the value that must be declared on official shipping documents.
The delivery-risk point is the same for all three ocean terms. What changes is who arranges and pays for the ocean trip and insurance.
Same shipment, three possible terms: ABC Motors ships a car from New York to Mumbai. Under FOB New York, the buyer arranges and pays for the ocean voyage. Under CFR Mumbai, ABC Motors pays for ocean carriage to Mumbai. Under CIF Mumbai, ABC Motors also provides the required cargo insurance. In all three cases, risk normally passes when the car is on board the vessel in New York.
Seller delivers goods on board vessel at shipment port.
Risk transfers on board at shipment port.
Buyer contracts and pays for ocean freight to destination port.
Buyer decides whether to insure cargo.
Seller delivers goods on board vessel at shipment port.
Risk transfers on board at shipment port.
Seller pays ocean freight to destination port.
Buyer decides whether to insure cargo.
Seller delivers goods on board vessel at shipment port.
Risk transfers on board at shipment port.
Seller pays ocean freight to destination port.
Seller provides cargo insurance for the buyer’s benefit.
FOB, CFR, and CIF differ in freight cost and insurance obligations, but the risk-transfer point is the same: goods on board the vessel at the shipment port.
The sales agreement should identify the applicable trade term, departure port, and included shipping costs.
Incoterms® allocates obligations, risk and costs; it does not provide a universal formula for setting the seller's commercial price or establish when ownership transfers.
When comparing supplier quotations, request an itemized breakdown of the charges included at origin and destination. A CIF price includes the required freight and insurance, but it does not necessarily include every cost after the vessel arrives. Compare the full landed cost—not just the quoted goods price—before choosing an offer.
FOB is one of several Incoterms® 2020 rules used in international trade. The table below shows how FOB compares with EXW, FCA, DAP, and DDP, particularly where delivery occurs and when the buyer takes on shipping risk.
| Comparison | Main Difference | When Does the Buyer Bear Risk? |
|---|---|---|
| FOB vs EXW (Ex Works) | Under EXW, the seller makes goods available at the agreed location. Under FOB, the seller delivers them on board the vessel. | EXW: When goods are placed at the buyer’s disposal at the named place, not loaded on a collecting vehicle. FOB: Once goods are on board the vessel. |
| FOB vs FCA (Free Carrier) | FCA uses an agreed carrier handover point; FOB requires delivery on board the vessel. | FCA: At the agreed delivery point, once the applicable delivery requirements are met. FOB: On board the vessel. |
| FOB vs DAP (Delivered at Place) | Under DAP, the seller arranges and pays for transport to the named destination. | DAP: When goods are placed at the buyer’s disposal at the named destination, ready for unloading. FOB: Once goods are on board the vessel at the shipment port. |
| FOB vs DDP (Delivered Duty Paid) | Under DDP, the seller also handles import clearance and applicable import duties. Under FOB, those obligations belong to the buyer. | DDP: When import-cleared goods are placed at the buyer’s disposal at the named destination, ready for unloading. FOB: Once goods are on board the vessel at the shipment port. |
Further guidance on special shipping arrangements, freight charges, carrier claims and accounting.
Under international Incoterms® 2020, FOB is only for sea and inland waterway transport; it is not an air-freight rule. FCA (Free Carrier) may be more appropriate when the seller delivers goods to an air carrier at an agreed location.
Under EXW, the seller makes the goods available at a named place, such as a factory, while the buyer generally takes responsibility for collection and most subsequent transport arrangements. Under international FOB, the seller clears the goods for export and delivers them on board the buyer’s nominated vessel at the named shipment port. The terms assign different tasks and costs, so compare the full shipping arrangements rather than just the quoted goods price.
The buyer normally arranges the vessel and provides the seller with the information needed to deliver the goods for loading at the agreed port. Incoterms® 2020 addresses circumstances in which required notice is not given or the nominated vessel does not arrive or take the goods as arranged. The specific duties and consequences depend on the agreed FOB term and the relevant rule.
After delivery on board, the seller must provide the customary proof of delivery and may have to assist with transport-related information or documents at the buyer’s request, with costs allocated under the agreed arrangements. These delivery and documentation obligations do not decide when ownership transfers.
Explore these supplementary FOB shipping reference images. Select any thumbnail to view it larger.
Quick definitions of the freight and shipping terms used throughout this guide.
A shipping document issued by a carrier that records shipment details and the terms under which the goods are transported.
↑ Back to readingInsurance purchased to protect goods against covered loss or damage during transportation. Coverage depends on the policy.
↑ Back to readingThe trucking company or other transport business that moves the goods from the seller toward the buyer.
↑ Back to readingThe carrier’s legal responsibility for shipment loss or damage, subject to the transport agreement, applicable law, and liability limits.
↑ Back to readingThe buyer pays the carrier and receives an agreed allowance or deduction from the seller.
↑ Back to readingThe mutually agreed location where the seller completes delivery under the applicable shipping terms.
↑ Back to readingThe customs procedures and documentation required to authorize goods to leave the exporting country.
↑ Back to readingA shipping term that allocates delivery responsibilities and risk between buyer and seller; its specific meaning differs between U.S. domestic trade and Incoterms® 2020.
↑ Back to readingA U.S. shipping term under which the seller generally bears transit risk until the goods are properly presented for delivery at the agreed destination.
↑ Back to readingA U.S. shipping term under which the buyer generally bears transit risk once the seller has properly delivered the goods to the carrier.
↑ Back to readingAn Incoterms® rule under which the seller delivers goods to a carrier or another party nominated by the buyer at an agreed location. Often better suited to container shipments than FOB.
↑ Back to readingA freight billing arrangement in which the consignee or designated receiving party is billed by the carrier.
↑ Back to readingA freight billing arrangement in which the shipper pays the carrier.
↑ Back to readingThe shipper pays the carrier and adds the freight charge to the customer’s invoice.
↑ Back to readingThe customs procedures required to bring goods into the destination country, including applicable import declarations.
↑ Back to readingInternational trade rules that explain the delivery duties, costs, and shipping risks agreed between buyer and seller.
↑ Back to readingThe principal transportation leg of an international shipment, such as the ocean voyage from the loading port to the destination port.
↑ Back to readingCargo insurance covering specified loss or damage risks associated with ocean transport, subject to the policy terms.
↑ Back to readingDelivery that satisfies the applicable contract and legal requirements. In a shipment contract, this can include suitable transport arrangements and notice to the buyer.
↑ Back to readingThe question of whether the buyer or seller bears the financial consequences if goods are accidentally lost or damaged during shipping.
↑ Back to readingThe agreed location where the seller hands the goods to the transport carrier, often the seller’s warehouse or loading location.
↑ Back to readingProperly making goods available to the buyer at the agreed delivery location in accordance with the applicable terms.
↑ Back to readingThe risk of loss of or damage to goods while they are being transported.
↑ Back to readingU.S. commercial laws governing transactions such as the sale of goods.
↑ Back to readingThis article is provided by FreightClassCalculator.tools, operated by Greenspark.Group LLC, for general educational and informational purposes. Shipping responsibilities, costs, risk of loss, and legal obligations may vary according to the sales agreement, applicable law, and individual shipment circumstances. Readers should consult the relevant agreements and official sources when making shipping or contractual decisions.
Trademarks and Attribution: Incoterms® and the Incoterms® 2020 logo are trademarks of the International Chamber of Commerce (ICC). The Incoterms® Rules are protected by copyright owned by ICC. Use of these trademarks does not imply association with, approval of, or sponsorship by ICC. Further information is available from the ICC website.
The Uniform Commercial Code (UCC) and other third-party sources referenced in this article are acknowledged for informational and educational purposes. References to these organizations or publications do not imply endorsement, affiliation, or sponsorship.
