FOB Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of FOB, written in plain English, along with examples of how it is used.
What is FOB?
(adj) FOB is the short form of ‘free on board’ is 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. In FOB cases, insurance and all incidental cost there after need to be born by the buyer
History and Meaning of FOB
FOB stands for "Free on Board" and is a shipping term used to indicate which party is responsible for the associated costs and risks of transporting goods from the seller to the buyer. FOB implies that the seller is responsible for the goods until they are loaded onto a shipping vessel or transportation vehicle, at which point the responsibility and costs associated with the transportation are transferred to the buyer. FOB is commonly used in international trade when goods cross a border.
The FOB term has a long history in international trade and has been in use for centuries. It was first used by merchants who sold products directly from ships to buyers, and it has since been adapted to modern transportation methods like planes, trains, and trucks.
Examples of FOB
A buyer from the United States purchases goods from a seller in China with an FOB shipping point. This means the buyer is responsible for any costs and risks that may arise during the transportation of goods from China to the United States, even if the seller arranges the transport.
A company in Germany agrees to sell goods to a buyer in France on an FOB basis. The company is responsible for the goods and associated costs until they are loaded onto the transportation vehicle in Germany.
A seller in India agrees with a buyer in Canada on an FOB shipping point. The buyer is responsible for all costs associated with transporting the goods from India.
Legal Terms Similar to FOB
- CIF (Cost, Insurance, and Freight)
- EXW (Ex Works)
- CFR (Cost and Freight)
- CPT (Carriage Paid To)