FOB Free on Board Incoterms® 2020 Rule UPDATED 2025

Despite having the risk of loss or damage to the goods from the delivery point, the buyer does not have an obligation to the seller to insure the goods. In all the rules, the seller bears all risks of loss or damage to the goods until they have been “delivered” in accordance with A2 described above. Alternatively, FOB destination places the delivery responsibility on fob shipping point the seller. The seller maintains ownership of the goods until they are delivered, and once they’re delivered, the buyer assumes ownership. Free on board, also referred to as freight on board, only applies to shipments made via waterways and doesn’t apply to goods transported by vehicle or air. It is essential to know when the title of the goods changes from the seller to the buyer.

• Join the digital logistics world and access a vast network of vetted freight forwarders from one single place.
• The buyer is not responsible for the goods during transit; therefore, the buyer often is not responsible for paying for shipping costs.
• ICC Incoterms were last updated in 2020 but remain valid contractual terms.
• To understand each designation, we must first understand the difference between place of origin and place of destination and freight collect vs. freight prepaid.
• The seller owns the goods during transit and undertakes the risk of loss and damage during transit.

Free on Board (FOB) Explained: Who’s Liable for What in Shipping?

Key export documents include the Bill of Lading, the commercial invoice, and the packing list. Freight forwarders treat it as a way that they know the seller pays local charges in the export country, freight is marked as “collect” on the transport document and paid by the buyer. Often, their instruction forms to be completed and signed by the seller will only show three or four options, and FOB always features whether the goods are being transported by container or by air. How do the costs and risks get split at the point while the goods are suspended above the ship’s rail?

Cost Responsibility and Transparency

• The fact that the treadmills may take two weeks to arrive is irrelevant to this shipping agreement; the buyer already possesses ownership while the goods are in transit.
• As the Incoterms® 2010 and now 2020 rules are very much intended to apply to both international and domestic trade, it is hoped that all manner of strange local rules will die out.
• FOB is the most common agreement between an international buyer and seller when shipping cargo via sea.
• FOB destination shipping is in the buyer’s best interest and an effective way for businesses to enhance their customer service.
• “FOB Origin” refers to the legal fact that the buyer assumes title of the goods the moment the freight carrier picks up and signs the bill of lading (BOL) at the origin pick-up location.

Although this industry has a lot of depth, some things are more important to understand than others. Topping the list of things you absolutely need to know are terms related to payment, liability and responsibility. These set the guidelines for many of your company’s transactions and shipments.

Why Is FOB Better?

This term transfers the responsibility for shipping costs and customs clearance to the buyer, allowing the seller to record the sale as soon as the goods are loaded onto the shipping vessel. Under FCA, the seller is responsible for delivering the goods to a carrier or another party nominated by normal balance the buyer at a specified location. The seller handles the export customs clearance, and once the goods are handed over to the carrier, the buyer assumes responsibility for the transportation costs and risks. In international shipping, for example, “FOB name of originating port” means that the seller (consignor) is responsible for transportation of the goods to the port of shipment and the cost of loading. The buyer (consignee) pays the costs of ocean freight, insurance, unloading, and transportation from the arrival port to the final destination. The seller passes the risk to the buyer when the goods are loaded at the originating port.

Quick guide to Incoterms

Both come with a different set of responsibilities, and you can negotiate for better pricing and more control over shipment. FOB or other intercoms define the responsibilities of both the Buyer and Seller. This could result in allocating your resources and energies to the shipment process.

Who Ultimately Pays the Tariffs?

For more information on shipping terms and best AI in Accounting practices, refer to resources from the U.S. Choosing the right term depends on the specific needs and capabilities of your business. The FOB shipping arrangement has its advantages and disadvantages for businesses. FOB gives you the flexibility to choose whether Origin or Destination type.

FOB Origin Freight Collect:

For FOB shipping point, ownership transfers when the goods are loaded on a ship. For FOB destination, the transaction is not complete until the goods reach the buyer. With the FOB shipping point option, the seller assumes the transport costs and fees until the goods reach the port of origin. In a FOB shipping point agreement, ownership transfers from the seller to the buyer once the goods are delivered to the point of origin. At this shipping point, the buyer becomes the owner and bears the risk during transit.