What Is FOB Mean?

FOB is a commonly used term in international trade that stands for "Free On Board" or "Freight On Board." FOB indicates the point at which the seller fulfills their obligation to deliver the goods to the buyer. This term is essential for import and export transactions, and it has significant implications for shipping, insurance, payment, and taxes.

When a price quote includes FOB, the seller covers the costs of loading the goods onto the carrier and getting them to the port or airport of departure. Once the goods are loaded, the ownership and risk of damage or loss transfer from the seller to the buyer. Therefore, the buyer is responsible for paying the freight charges, customs fees, and other expenses associated with the transportation and delivery of the goods.

The FOB term has several variations that specify the particular place of delivery. For instance, FOB Shipping Point means that the buyer assumes ownership and risk of loss at the moment the goods are packed and shipped from the seller's facility. FOB Destination, on the other hand, means that the seller retains ownership and risk of loss until the goods are delivered to the specified destination, usually the buyer's premises.

FOB has important implications for insurance coverage and claims. In general, the risk of loss or damage to the goods passes from the seller to the buyer at the FOB point. Therefore, the buyer should arrange for appropriate insurance coverage for the goods during transit and until they are delivered to the final destination. Failure to do so can result in financial losses and disputes between the parties.

In conclusion, understanding the FOB term and its variations is crucial for international trade transactions. It is important to clarify the FOB point and its implications in the contract of sale and other relevant documents to avoid misunderstandings and legal disputes. By doing so, both the buyer and the seller can protect their interests, reduce costs, and ensure smooth and timely delivery of goods.