FOB, short for “Free on Board”, means that the exporter is obligated to deliver the goods aboard the vessel designated by the importer at the agreed delivery port in the country of export.
By placing the goods aboard the ship, the exporter has fulfilled its obligation to the importer and at that point all the risks and costs transfer to the importer.
Export clearance and terminal handling charges in the country of export fall on the exporter. FOB is only used for sea or inland waterway transport.
FOB is slightly different from FAS; while with FAS, the exporter has no obligation to the importer to load the goods aboard the vessel, with FOB loading them aboard falls on the exporter.
FOB is the most commonly used incoterm in international trade as the exporter doesn’t have to take time to find the best freight cost to quote its prospect. Instead, it just adds customs and inland transportation costs to the price of the goods which don’t fluctuate as much as sea freight pricing.
With FOB, the allocation of the responsibilities is reasonably fair. As it’s its own country, the exporter can handle the inland transportation, customs formalities and THC in its own country with its forwarder and customs broker quite well. On the other hand, the importer arranges the vessel through its own forwarder, so all the operation is under its control from delivery port in the exporter’s country until its warehouse.