thumbnail|Dockers loading bagged cargo
FOB (free on board) is a term in international commercial law specifying at what point respective obligations, costs, and risk involved in the delivery of goods shift from the seller to the buyer under the Incoterms standard published by the International Chamber of Commerce. FOB is only used in non-containerized sea freight or inland waterway transport. As with all Incoterms, FOB does not define the point at which ownership of the goods is transferred.
The term FOB is also used in modern domestic shipping within North America to describe the point at which a seller is no longer responsible for shipping costs.
Ownership of a cargo is independent of Incoterms, which relate to delivery and risk. In international trade, ownership of the cargo is defined by the contract of sale and the bill of lading or waybill.
Historical usage
The term "free on board", or "f.o.b." was used historically in relation to the transfer of risk from seller to buyer as goods are shipped. There appears to have been an assumption that property and risk would pass from the seller to the buyer at the same time. In the case of Browne v Hare, settled in the Court of Exchequer Chamber in 1858, it was noted that a shipper's attempt to reserve title after shipment would have constituted a breach of the contract's f.o.b. terms:
Browne also made an assumption that in an earlier case, Wait v Baker (1848), the seller of a supply of barley carried on f.o.b. terms, who had delivered to a third party, was in breach of their contract with the buyer. Judge Mackenzie Chalmers also notes Van Casteel v Booker (1848), Turner v Liverpool Docks (1851), and Gabarron v Kreeft (1875) as cases which show that property passes "on board" to the buyer.
Later cases such as Mirabita v Ottoman Imperial Bank allowed that a contract could make the transfer of property subject to payment, so long as the intention behind this reservation was to secure payment and not to prevent transfer of possession.
Incoterms
Under the Incoterms (2020) standard published by the International Chamber of Commerce, FOB is only used in sea freight and stands for "Free On Board". The term is always used in conjunction with a port of loading. Destination need not be specified and may be left "free".
Indicating "FOB port means that the seller pays for transportation of the goods to the port of shipment, plus loading costs. The buyer pays the cost of marine freight transport, insurance, unloading, and transportation from the arrival port to the final destination. The passing of risks occurs when the goods are loaded on board at the port of shipment. For example, "FOB Vancouver" indicates that the seller will pay for transportation of the goods to the port of Vancouver, and the cost of loading the goods on to the cargo ship (this includes inland haulage, customs clearance, origin documentation charges, demurrage if any, origin port handling charges, in this case Vancouver). The buyer pays for all costs beyond that point, including unloading. Responsibility for the goods is with the seller until the goods are loaded on board the ship. Once the cargo is on board, the buyer assumes the risk.
thumbnail|Ship loading at a wharf
The use of "FOB" originated in the days of sailing ships. When the ICC first wrote their guidelines for the use of the term in 1936, the ship's rail was still relevant, as goods were often passed over the rail by hand. In 1954, in the case of Pyrene Co. Ltd. v. Scindia Steam Navigation Co. Ltd., Justice Devlin, ruling on a matter relating to liability under an FOB contract, described the situation thus:
In the modern era of containerization, the term "ship's rail" is somewhat archaic for trade purposes, as with a sealed shipping container, there is no way of establishing when damage occurred after the container has been sealed. The standards have noted this. Incoterms 1990 stated
Incoterms 2000 adopted the wording