Exporting 101: Free on Board (FOB)

International trade involves a lot of rules, regulations and terms that can be confusing to a small business owner, but that shouldn’t stop you from expanding your market outside of the United States.

Free on Board (FOB) is one of the oldest shipment-delivery terms and means that the seller fulfills delivery obligations (and ends seller risk) when goods are loaded onboard a vessel at the port location on the seller’s side. This definition is set out in the Incoterms 2010 Rules, which are the standard sets of trading terms and conditions designed to assist traders when goods are sold and transported.

Used for exports, FOB relates to the Seller and Buyer shipment and delivery obligation, but the following criteria must be met:

1. Restricted to sea and inland waterway transport.
2. Buyer selects freight forwarder, contracts carriage, and pays for freight to destination.
3. Neither the Seller nor the Buyer have any obligation to each other to obtain a contract for insurance. This should be defined in the sales contract.
4. Applies to goods lifted across the ship’s rail (break-bulk cargo, no containers)
5. Applies to goods tendered to the ship in hoses for liquid cargo.
6. Applies to goods filled from silos when the cargo is to be carried loose in bulk.

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