FOB (shipping)

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.

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:

"If, at the time the oil was shipped at Rotterdam, the plaintiffs had intended to continue their ownership, and had taken the bill of lading in the terms in which it was made for the purpose of continuing the ownership and exercising dominion over the oil, they would in our opinion have broken their contract to ship the oil 'free on board', and the property would not have passed to the defendants; but if when they shipped the oil they intended to perform their contract and deliver it 'free on board' for the defendants, we think they did perform it, and the property in the oil passed from them to the defendants.

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.

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".