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FOB Incoterm® 2020: Responsibilities, advantages and disadvantages

FOB (Free-On-Board) is one of the most used Incoterms®. Here, the seller is responsible for delivering the goods to the agreed port and loading them.
André Lundberg

Posted

5. January 2025

 - 

Table of contents

FOB, which stands for "Free-On-Board," is one of the most used Incoterms® in international trade.

 

It is used to define who is responsible for the goods and transport costs during delivery.

 

FOB can be a good solution for both the seller and the buyer, but it is important to understand the division of responsibilities clearly in order to avoid misunderstandings.

What does FOB mean?

FOB (Free-On-Board) means that the seller is responsible for delivering the goods to the agreed port and loading them onto the buyer's chosen ship. Once the goods are on board the ship, responsibility for risk, insurance, and costs passes to the buyer. 

 

ATTENTION: FOB can only be used for sea freight.

Responsibility with FOB

For FOB, all responsibility is transferred from the seller to the buyer once the goods have been loaded onto the ship. This also marks the end of the seller's responsibility for damage or loss.

Seller's responsibility:

 

  • Pack and label the goods correctly.
  • Ensure that the goods are transported to the port of shipment.
  • Handle customs clearance in the exporting country.
  • Load the goods safely onto the ship.

ATTENTION: The seller shall not load the goods/merchandise, but only make them available.

The buyer assumes responsibility once the goods have been loaded on board and must:

 

  • Arrange and pay for shipping and insurance.
  • Arrange import duties and customs clearance in the recipient country.
  • Cover the risk of damage or loss after the goods are on the ship.

DDP is just one of many Incoterms®. If you would like to learn more about other Incoterms® such as FOB, CIF and EXW, and get an overview of their responsibilities, you can read our post about all Incoterms® 2020.

Pros and cons of FOB for the seller

Pros:

 

  • The seller's responsibility ends when the goods are on the ship.
  • No need to arrange transport and insurance after shipment.

Cons:

 

  • Delays on the part of the buyer may affect delivery.

Pros and cons of FOB for the buyer

Pros:

 

  • Can choose their own carrier and negotiate the price.
  • Controls freight and insurance costs.

To sum up

FOB is a good choice for sea freight for both buyers and sellers.

 

This gives the buyer control over freight and insurance, while the seller can end their responsibility upon delivery to the ship.

 

However, it is important that both parties understand the division of responsibilities in order to avoid problems. But with FOB, both parties can have a transparent delivery process that meets the needs of both parties.

 

Get an overview of the responsibilities under all Incoterms® 2020.

Meet the specialist behind this, André Lundberg
André Lundberg is CEO and Co-Founder of FreightSolution with over 13 years of experience in freight and logistics. He is a trained freight forwarder and has worked as both a freight buyer and freight seller. He therefore knows the industry and the challenges it faces from both sides of the desk. Every day, he hears about the freight market from logistics managers, carriers and partners. But he is also the one who has his nose deepest in our data, which covers freight costs across more than 220 carriers and 16 countries. He therefore always knows what is happening in the market. André regularly gives presentations both internally and externally. He has given presentations at Erhvervshus Holstebro, Erhvervsrådet Herning & Ikast-Brande and to students on the dispatcher training programme.

Frequently asked questions about Incoterms®

What does FOB mean?

FOB is an Incoterms® and stands for "Free-On-Board". This means that the seller is responsible for delivering the goods to the agreed port of shipment and loading them onto the buyer's chosen ship.

 

Once the goods have been loaded onto the ship, responsibility for risk, insurance and costs passes to the buyer.

There is no Incoterms® 2025 edition. The latest version is Incoterms® 2020, and before that it was 2010.

FOB Incoterm® 2020 means that the seller delivers the goods to the port of shipment and loads them onto the buyer's ship. Once the goods are on board, responsibility for risk, insurance and costs passes to the buyer.

EXW stands for "Ex Works" and means that the seller's responsibility ends when the goods are available to the buyer at the seller's location or another agreed location.

 

The buyer bears all risks and costs for transport, customs and delivery from the seller's location.

FCA stands for "Free Carrier" and means that the seller delivers the goods to a carrier chosen by the buyer at an agreed location. Once the goods have been handed over to the carrier, responsibility and risk are transferred to the buyer.

Incoterms® 2020 is the latest update to the trade terms, which came into effect on 1 January 2020.

 

This version contains a number of changes and clarifications compared to previous editions, including changes to the rules governing delivery locations, transport methods and the division of responsibility between buyer and seller.

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