Free On Board (FOB) Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Free On Board (FOB), written in plain English, along with examples of how it is used.

What is Free On Board (FOB)?

(adj) Free On Board is the phrase used to represent the pricing, cost structure, transfer of property right of a goods or merchandise sold, representing that sellers responsibility for incidental cost and risk ends when the goods are shipped on board of the transport vehicle. It is commonly termed as ‘FOB’ cost in which insurance and all incidental cost there after need to be born by the buyer

History and Meaning of Free On Board (FOB)

Free On Board (FOB) is a shipping term commonly used in international trade. It means that the seller is responsible for the goods until they are loaded on board the transport vehicle. After that point, the buyer assumes responsibility for the goods and any associated costs. FOB terms are used to indicate the point at which liability and risk transfer from the seller to the buyer.

The term "Free On Board" was first used in the 1800s, when goods were generally shipped by sea. Initially, it meant that the seller was responsible for loading the goods onto the ship, and that the buyer would take ownership of the goods once they were on board. Over time, the meaning of FOB has evolved to reflect changes in transportation and logistics, but the basic principle remains the same: the seller's responsibility ends when the goods are loaded onto the transport vehicle.

Examples of Free On Board (FOB)

  1. A supplier in China quotes a price for their goods as FOB Shanghai. This means that the seller is responsible for getting the goods to the port in Shanghai and loading them onto the ship. The buyer is responsible for arranging for the goods to be transported from the port of arrival to their final destination, as well as for any associated costs such as customs duties and insurance.

  2. A manufacturer in the United States agrees to ship their goods FOB Los Angeles to a customer in Australia. This means that the seller is responsible for getting the goods to the port in Los Angeles and loading them onto the ship. The buyer is responsible for arranging for the goods to be transported from the port of arrival in Australia to their final destination, as well as for any associated costs such as customs duties and insurance.

  3. A retailer purchases goods from a supplier with FOB terms. The supplier is responsible for delivering the goods to the retailer's warehouse and loading them onto the truck. After that point, the retailer is responsible for any associated costs and assumes all risk.

Legal Terms Similar to Free On Board (FOB)

  1. Cost, insurance, and freight (CIF): a shipping term in which the seller is responsible for the cost, insurance, and freight of the goods until they are delivered to the port of destination.

  2. Ex works (EXW): a shipping term in which the buyer is responsible for all costs and risks associated with the transportation of the goods from the seller's premises.

  3. Delivered duty paid (DDP): a shipping term in which the seller is responsible for all costs associated with the delivery of the goods to the buyer's premises, including customs duties and insurance.