FOB Incoterms: Free on Board and the Container Mistake
FOB, Free on Board, is probably the best known Incoterm and the most frequently misused. The seller delivers the goods on board a vessel nominated by the buyer at a named port of shipment. Risk passes when the goods are on board.
What FOB requires
The seller delivers the goods on board the vessel, clears them for export, and bears all cost and risk to that point. The buyer contracts and pays for the ocean carriage, insurance if it wants any, and everything from the load port onward.
Where risk passes
When the goods are on board. Under the current wording that means placed on board the vessel, replacing the old ship's rail language that generated so much argument in earlier editions.
The container mistake
This is the single most common Incoterms error in Gulf trade documentation, and it is worth being precise about why it matters.
FOB assumes the seller controls the goods right up to the moment they are lifted onto the ship. With break bulk cargo that is roughly true. With a container it is not. The seller delivers the box to a container yard or terminal, often several days before the vessel loads. From that handover the seller cannot inspect the container, cannot protect it and cannot do anything about it.
Yet under FOB the seller carries the risk for that whole period. If the container is damaged, stolen or dropped at the terminal before loading, the loss is the seller's, for goods it no longer controls.
In practice these losses turn into arguments, because neither party expected to carry them. The International Chamber of Commerce is explicit that FCA is the correct rule for containers. We explain the alternative in FCA Incoterms.
Why FOB persists anyway
Two reasons, both understandable.
Habit. FOB has been in trade vocabulary for a century and sits in countless templates.
Letters of credit. Sellers needed an on board bill of lading to get paid, and FOB produced one naturally while FCA did not. Incoterms 2020 added an optional mechanism that lets an FCA seller obtain the same document, which removes the main practical reason for the workaround. See Incoterms and letters of credit.
When FOB is correct
Bulk cargo, break bulk, and anything genuinely loaded loose onto a vessel where the seller retains control until loading. For those shipments FOB does exactly what it was designed to do.
Where this rule sits
FOB is the second of the four sea rules. FAS stops at the quayside, FOB extends to loading, and CFR and CIF add the ocean freight and, for CIF, insurance.
For the full set, see our guide to all 11 Incoterms 2020 rules, or work through how to choose the right rule for a given shipment. Our Mastering Incoterms 2020 course covers every rule with worked examples from Gulf trade lanes.
Frequently asked questions
What does FOB mean in Incoterms?
Free on Board. The seller delivers the goods on board a vessel nominated by the buyer at a named port and clears them for export. Risk passes once the goods are on board.
Why should FOB not be used for containers?
A container is handed over at a terminal days before loading, but under FOB the seller carries risk until the goods are on board. That leaves the seller responsible for cargo it cannot control.
What should we use instead of FOB for containers?
FCA. Risk passes when the goods are handed to the carrier, which matches what actually happens with containerized cargo.
Who pays the ocean freight under FOB?
The buyer. The seller pays only to get the goods on board. If you want the seller to pay the freight, use CFR or CIF.
Is FOB still valid in Incoterms 2020?
Yes. FOB remains one of the eleven rules and is appropriate for bulk and break bulk cargo loaded loose onto a vessel.
