FOB Explained: Meaning, Risk Transfer, Cost, and FOB vs CIF vs FCA
FOB is the go-to rule when the buyer wants to control transport through their own forwarder. But there is a trap: FOB is used out of habit for containerized cargo, even though it is not technically the right fit.
This piece goes deep on FOB alone. For a full comparison of all 11 rules, see the complete Incoterms 2020 guide.
What Is FOB?
FOB (Free On Board) is an Incoterms rule where delivery is complete once the seller loads the goods on board at the load port, after which the buyer bears main freight and risk. It is for sea and inland-waterway transport only, and it sits in Group F, where the buyer pays main freight. You write the rule and load port together in the contract, like "FOB Busan."
Who Bears What Under FOB
| Item | Bearer |
|---|---|
| Export clearance | Seller |
| Up to loading on board | Seller |
| Main freight to destination port | Buyer |
| Cargo insurance | Parties' choice |
| Import clearance and duties | Buyer |
The seller is responsible only for export clearance and loading on board. After that, freight, insurance, and import clearance are on the buyer.
Risk and Cost Transfer at the Same Point
Unlike Group C, FOB has its cost divide and risk divide roughly aligned. Both sit at the point where the goods are loaded on board at the load port. Past this point the buyer pays the freight and carries the risk of any incident.
FOB vs CIF: Who Pays Freight and Insurance
The risk-transfer point (on board at the load port) is identical; only the cost burden differs.
| Item | FOB | CIF |
|---|---|---|
| Freight to destination port | Buyer | Seller |
| Insurance | Parties' choice | Seller (minimum) |
| Risk transfer | Once on board at load port | Once on board at load port (same) |
Use FOB when you want to control and optimize transport yourself; use CIF when you want to leave it to the seller. For a side-by-side breakdown of cost, insurance, and duty, see FOB vs CIF.
FOB vs FCA: What to Use for Containers
This is the biggest trap in practice. Containerized (FCL) cargo is not loaded directly on board but handed to the carrier at the terminal/CY. FOB's risk-transfer basis (loading on board) and the actual point of delivery (drop-off at the CY) fall out of sync.
So for containers, FCA (Free Carrier), based on delivery to the carrier rather than loading on board, is technically correct. FOB is sometimes used out of habit, but FCA is recommended to avoid a gap in risk. For a side-by-side breakdown of the container risk gap, see FCA vs FOB.
When to Use FOB
- When you want to control and optimize transport: appoint your own forwarder to manage rate and schedule.
- For bulk and other conventional ocean cargo: the loading-on-board basis matches actual delivery. (For containers, consider FCA.)
Import Duties and FOB
Korea assesses import duty on a CIF-based customs value (freight and insurance included). If you contract on FOB, you must add freight and insurance to the FOB amount to reach the customs value. To see the duty on an FOB amount, the FOB import duty calculator adds freight and insurance and computes it right away.
This guide is for general information. Actual contracts depend on the detailed rules and each deal, so confirm against the ICC rules and with a specialist.
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Frequently asked questions
What is FOB?
FOB (Free On Board) is an Incoterms rule where delivery is complete once the seller loads the goods on board at the load port, after which the buyer bears main freight and risk. It is for sea and inland-waterway transport only and sits in Group F, where the buyer pays main freight.
What is the difference between FOB and CIF?
The risk-transfer point is the same for both: once the goods are on board at the load port. The difference is cost: under FOB the buyer pays freight to the destination port, while under CIF the seller pays that freight plus insurance.
For containers, should I use FOB or FCA?
Containers are handed to the carrier at the terminal/CY rather than loaded on board, so FCA is technically correct. FOB is common in practice, but the risk-transfer point can misalign, so FCA is recommended.
How is the customs value calculated for an FOB import?
Korea assesses customs value on a CIF basis, so you must add freight and insurance to the FOB amount to reach the customs value. The FOB import duty calculator adds freight and insurance and computes it right away.
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