In one sentence
FOB (Free On Board) is a sea-freight Incoterm where the seller delivers the goods on board the vessel at the named port of shipment, cleared for export. Risk transfers from seller to buyer the moment the goods are on board. The buyer then contracts and pays for the ocean freight, insurance, destination charges, import clearance, duty and VAT, and delivery to door.
FOB is the workhorse term of international sea freight — it's the one most UK importers will encounter when buying from China, India, Vietnam, or Turkey. Suppliers know it, banks accept it under letters of credit, and it gives the buyer control of the ocean freight leg.
FOB responsibility — who does what
| Activity | Seller | Buyer |
|---|---|---|
| Goods, packing, commercial invoice | Yes | — |
| Inland transport to origin port | Yes | — |
| Export clearance | Yes | — |
| Origin port handling (THC origin) | Yes | — |
| Loading on vessel | Yes | — |
| Ocean freight | — | Yes |
| Marine cargo insurance | — | Yes (optional but recommended) |
| Destination port handling (THC dest) | — | Yes |
| Import clearance, duty, VAT | — | Yes |
| Delivery from UK port to door | — | Yes |
Where risk transfers
Risk transfers from seller to buyer once the goods are on board the vessel at the named port of shipment. Up to that point, the seller bears any loss or damage. The moment the goods cross the ship's rail (older Incoterms language) or are loaded on board (Incoterms 2020 language), the risk is the buyer's — even though the buyer is unlikely to have insurance in place at that exact moment.
When to use FOB
- You ship regularly from a specific origin and want to lock in competitive freight rates with your own UK forwarder
- You want visibility on actual freight costs — useful for cost accounting and customer pricing
- You want control over routing and transit time — particularly important for seasonal or perishable goods
- You have a UK forwarder who will manage customs, demurrage risk, and exceptions for you
- Your shipment is sea freight in non-containerised form (breakbulk, bulk) — FOB was originally designed for this
- You're trading under a letter of credit that requires an on-board Bill of Lading — FOB delivers this naturally
When not to use FOB
- Containerised cargo, technically. The ICC recommends FCA for containers because risk shouldn't transfer at the ship's rail when the goods may be sitting in the terminal for days before loading. In practice FOB is still widely used for containers — banks and suppliers prefer it
- Air freight, road or rail. FOB is sea-only. Use FCA for those modes
- You have no UK freight forwarder. If you're buying FOB you need someone to actually arrange the ocean freight — CIF lets the seller handle that for you
- Very small one-off shipments where setting up forwarder relationships isn't worth the effort
FOB vs CIF — the most common comparison
FOB and CIF are the two terms UK importers see most often in Far East quotes. The difference: under FOB, you pay and control the ocean freight; under CIF, the seller pays and controls it (and bundles in basic insurance). CIF looks easier but the seller usually marks up the freight and uses a destination agent whose charges you can't see in advance.
For most UK importers shipping regularly: FOB wins. See our full FOB vs CIF comparison.
Worked example — UK importer buying FOB Shanghai
You buy a 20ft container of consumer goods FOB Shanghai. The supplier's invoice shows:
- Goods value FOB Shanghai: £14,000
- (Supplier covers: factory production, inland trucking to Shanghai port, Chinese export clearance, port handling, loading on vessel)
Your UK freight forwarder then quotes:
- Ocean freight Shanghai → Felixstowe (20ft): £1,200
- Marine insurance (0.15% of CIF value): £25
- Felixstowe THC + destination fees: £280
- UK customs entry: £75
- Haulage Felixstowe → your warehouse: £450
- UK-side costs: ~£2,030
Plus, on top of all that, you pay UK import duty (e.g. 4% of CIF value = £610) and import VAT (20%, or zero through PVA). Total landed cost: approximately £16,640 + duty + VAT.
Common FOB mistakes — and what they cost
| Mistake | What happens |
|---|---|
| No marine cargo insurance | If the container goes overboard or the vessel suffers loss, you have no claim. Insurance is typically 0.1–0.3% of cargo value — cheap protection |
| Supplier nominates the freight forwarder | You lose visibility on freight costs — the whole point of FOB is defeated. Always book your own forwarder |
| FOB used for airfreight | Strictly invalid (FOB is sea-only) — most parties accept it informally but it can create contract disputes |
| "FOB China" with no named port | Ambiguous — which port? Always specify "FOB Shanghai" or "FOB Yantian" |
| Missing on-board notation | For LC compliance the B/L must show "shipped on board" with a date. A "received for shipment" B/L is not FOB compliant |
Verdict
If you have a UK freight forwarder, ask for FOB quotes from your overseas suppliers. You get control of the freight leg, visibility on costs, and avoid the destination-charge surprises that come with CIF.
For pure containerised trade, FCA at the origin port terminal is the technically correct modern alternative — but FOB is so well-established in sea freight that most parties default to it.