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FOB is an initialism for Free On Board or Freight On Board. Generally, FOB deals with the shipping
Shipping

Shipping is physical process of transporting product and cargo. Virtually every product ever made, bought, or sold has been affected by shipping....
 of goods. It specifies which party (buyer or seller) pays for which shipment and loading costs, and/or where responsibility for the goods is transferred. The last distinction is important for determining liability
Liability

In the most general sense, a liability is anything that is a wikt:hindrance, or puts individuals at a disadvantage. It can also be used as a slang term to describe someone that puts a team or group of which they are a member at a disadvantage, and would thus be better off without....
 for goods lost or damaged in transit from the seller to the buyer.






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FOB is an initialism for Free On Board or Freight On Board. Generally, FOB deals with the shipping
Shipping

Shipping is physical process of transporting product and cargo. Virtually every product ever made, bought, or sold has been affected by shipping....
 of goods. It specifies which party (buyer or seller) pays for which shipment and loading costs, and/or where responsibility for the goods is transferred. The last distinction is important for determining liability
Liability

In the most general sense, a liability is anything that is a wikt:hindrance, or puts individuals at a disadvantage. It can also be used as a slang term to describe someone that puts a team or group of which they are a member at a disadvantage, and would thus be better off without....
 for goods lost or damaged in transit from the seller to the buyer. Precise meaning and usage of "FOB" can vary significantly. International
International trade

International trade is exchange of Capital , goods, and services across international borders or territories. In most countries, it represents a significant share of gross domestic product ....
 shipments typically use "FOB" as defined by the Incoterm standards. Domestic shipments within the US or Canada often use a different meaning, specific to North America, which is inconsistent with the Incoterm standards.

North American FOB usage corresponds to Incoterms approximately as follows:
North America Incoterm
FOB shipping point or FOB shipping point, freight collect FCA shipping point
FOB shipping point, freight prepaid CPT destination
FOB destination or FOB destination, freight prepaid DDU destination
FOB destination, freight collect No Incoterm equivalent


Incoterm


Under the Incoterm
Incoterm

Incoterms or international commercial terms are a series of international sales terms widely used throughout the world. They are used to divide transaction costs and responsibilities between buyer and seller and reflect state-of-the-art transportation practices....
 standard published by the International Chamber of Commerce
International Chamber of Commerce

The International Chamber of Commerce is the largest, most representative business organization in the world. Its hundreds of thousands of member companies in over 130 countries have interests spanning every sector of private enterprise....
, FOB stands for "Free On Board", and is always used in conjunction with a port of loading. Indicating "FOB port" means that the seller pays for transportation of the goods to the port of shipment, plus loading costs. The buyer pays cost of marine freight
Cargo

Cargo refers to goods or produce transported, generally for Commerce gain, by Cargo ship, Cargo airline, Train#Freight trains, van or truck. In modern times, containers are used in most intermodal freight transport long-haul cargo transport....
 transport, insurance
Insurance

Insurance, in law and economics, is a form of risk management primarily used to Hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed small loss to prevent a large, possibly devastating los...
, unloading, and transportation from the arrival port to the final destination. The passing of risks occurs when the goods pass the ship's rail 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
Vancouver

Vancouver is a coastal city and major seaport located in the Lower Mainland of southwestern British Columbia, Canada. It is the largest city in British Columbia and the second largest metropolitan area in the Pacific Northwest region....
, and the cost of loading the goods on to the cargo ship. The buyer pays for all costs beyond that point (including unloading). Responsibility for the goods is with the seller until the goods pass the ship's rail. Once loaded on to the ship, the buyer assumes risk.

Due to potential confusion with domestic North American usage of "FOB", it is recommended that the use of Incoterms be explicitly specified, along with the edition of the standard. For example, "FOB New York (Incoterms 2000)". Incoterms apply primarily to international trade
International trade

International trade is exchange of Capital , goods, and services across international borders or territories. In most countries, it represents a significant share of gross domestic product ....
, not domestic trade within a given country.

This use of "FOB" originated in the days of sailing ship
Sailing ship

Sailing ship is now used to refer to any large wind-powered vessel. In technical terms, a ship was a sailing vessel with a full rigged ship of at least three masts, square rigged on all of them, making the sailing adjective redundant....
s. When the ICC first wrote their guidelines for use of the term in 1936, the ship's rail was often still relevant, as goods were often passed over the rail by hand
Stevedore

The words stevedore, docker, dock labourer and longshoreman can have various waterfront-related meanings concerning loading and unloading ships, according to place and country....
. In the modern era of containerization
Containerization

Containerization is a system of intermodal freight transport cargo transport using standard International Organization for Standardization containers ...
, the term "ship's rail" is somewhat archaic for trade purposes. The standards have noted this. Incoterms 1990 stated, "When the ship's rail serves no practical purpose, such as in the case of roll-on/roll-off or container traffic, the FCA term is more appropriate to use." Incoterms 2000 adopted the wording, "If the parties do not intend to deliver the goods across the ship's rail, the FCA term should be used."

North America


The term FOB for "Freight On Board" is commonly used when shipping goods within the United States
United States

The United States of America is a Federal government constitutional republic comprising U.S. state and a federal district. The country is situated mostly in central North America, where its Contiguous United States and Washington, D.C., the Capital districts and territories, lie between the Pacific Ocean and Atlantic Oceans, Borders of the U...
, to indicate who pays loading and transportation costs, and/or the point at which the responsibility of the goods transfers from shipper to buyer. This usage derives from the now obsolete US "Foreign Trade Definitions" of 1941.

"FOB shipping point" or "FOB origin" indicates the buyer pays shipping cost, and takes responsibility for the goods when the goods leave the seller's premises. "FOB destination" designates the seller will pay shipping costs, and remain responsible for the goods until the buyer takes possession. A related but separate term "CAP" ("customer arranged pickup") is used to denote that the buyer will arrange a carrier of their choice to pick the goods up at the seller's premises, and the liability for any damage or loss belongs to the buyer.

Accounting and auditing


When counting inventory
Inventory

Inventory is a list for Good and materials, or those goods and materials themselves, held available in stock by a business. It is also used for a list of the contents of a household and for a list for will purposes of the possessions of someone who has died....
 for financial accountancy
Financial accountancy

Differences between managerial accounting and financial accountingFinancial accountancy is the field of accountancy concerned with the preparation of financial statements for decision makers, such as Shareholders, vendor s, banks, employees, government agencies, owners, and other stakeholders....
 purposes, shipping terms determine whether goods in transit are added to a company's balance sheet
Balance sheet

In financial accounting, a balance sheet or statement of financial position is a summary of a person's or organization's balances. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year....
. Items under "FOB shipping point/destination" (North American usage) generally do not appear in stock listings at year end. However, they should be included as the risk and rewards of ownership have transferred to the buyer.

With the advent of e-commerce, most commercial electronic transactions occur under the terms of "FOB shipping point" or "FCA shipping point". Most analysts see this as a disadvantage of online shopping compared to traditional in-person purchasing, where "FOB destination" is more prevalent.