FOB Incoterms - A Complete Guide of Free On Board

July 25, 2024

FOB Incoterms Definition

Incoterms FOB stands for “Free on Board”, which is one of 11 Incoterms, a set of standardized trade terms used globally published by the International Chamber of Commerce (ICC).

What is FOB Shipping

• The buyer shall send a ship to receive the goods, and the seller shall load the goods onto the designated ship at the port of loading.
• Before the cargo is on board, the seller assumes the risk. Once the cargo is on board, the buyer assumes the risk.
• FOB shipping only applies to sea freight or inland waterway transport that does not use containers.

FOB Pros & Cons

Pros

• Clear Allocation of Responsibilities
• Lower risk for the seller
• Flexibility for the buyer to choose a preferred carrier

Cons

• Higher cost and risk for the buyer
• Potential loss or damage during shipping

FOB VS CIF

Tips for Minimizing Risks under FOB

Under FOB shipping terms, the buyer often designates a local forwarder to manage interactions with the shipper’s domestic forwarder.

Typically, two types of bills of lading are used to establish ownership of goods: the House Bill of Lading (HBL) issued by the freight forwarder and the Master Bill of Lading (MBL) issued by the carrier.

The risk arises when the buyer’s freight forwarder retrieves the goods from the carrier using the MBL without presenting the HBL, and releases the goods directly to the consignee. This issue could result in the seller losing both the goods and payment.

Here are some tips for sellers:  

• Find out in which countries such scenarios frequently occur. When exporting to these countries, send the bill of lading after receiving goods and payment.
• Choose a secure payment method. For smaller transactions, negotiate with the customer to pay in full before shipping. For larger transactions, use the letter of credit guaranteed by a reputable bank.
• Avoid working with unreliable freight forwarders.
• Maintain records of all information and documents as evidence.
• Accurately report the value of goods in customs declarations. Once the scenario mentioned above occurs, the National Maritime Court determines based on the declared customs value.
• Monitor cargo status closely. Promptly contact carriers or agents if something abnormal is detected.

What to do when such a scenario occurs?

• Ask a lawyer to send a legal letter to the designated forwarder or carrier (depending on the circumstances), requesting compensation for the loss.
• If the designated freight forwarder or the carrier does not make compensation, keep records of all information and documents as evidence and find a lawyer to sue.

Conclusion

In summary, Incoterms FOB is an international shipping term that requires the seller to load the goods onto the vessel chosen by the buyer.

To make global shipping at ease, choosing the proper shipping terms is necessary. YQN’s professionals are proficient in all shipping terms for container shipping from Asia.

If you want more information about FOB (Free on Board), please contact our logistics experts at YQN (link to landing page or about us page). Manage your supply chain today!

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YQN Operation Team

info@yqn.com