QUICK ANSWER FOB means Free on Board, the term that fixes where cost and risk move from seller to buyer. It carries two separate meanings: an Incoterms rule for ocean imports, where risk passes once goods are loaded on the vessel, and the US domestic pair FOB shipping point vs FOB destination, which decides who pays the trucker and when ownership changes. Most FOB disputes come from mixing the two.
FOB lives two separate lives, and confusing them is where importers lose money. As an Incoterms rule for sea freight, risk transfers when goods are loaded on the vessel. As the US domestic pair "FOB shipping point" and "FOB destination", it decides who pays the trucker and when title changes hands. This guide keeps the two worlds apart.
What FOB stands for and why it means two things
FOB is Free on Board, a term old enough to predate containers: goods passed over the ship's rail and with them the risk. You will also see "Freight On Board", which is not an official term anywhere, not in the Incoterms rules and not in the UCC, and is best treated as a misreading.
The two real uses split by geography and contract type. In international trade, FOB is one of the eleven Incoterms, written as "FOB, named port of shipment", for example FOB Shanghai. In US domestic commerce and accounting, FOB shipping point and FOB destination are contract terms rooted in the Uniform Commercial Code that allocate freight cost and the moment title transfers. Same three letters, different rulebooks.
FOB under Incoterms 2020: imports by sea
Under the Incoterms FOB rule, the seller gets the goods export-cleared and loaded on board the vessel at the named origin port. The moment the cargo is on board, risk passes to the buyer. From there the buyer pays and controls the ocean freight, any insurance, US customs clearance, duty, and delivery.
What a FOB Shanghai price includes
When a supplier quotes $4.80 per unit FOB Shanghai, that number stops at the ship's deck. Everything after loading is yours, and it typically adds 10 to 30 percent or more to the invoice price depending on the product and the lane, which is why serious buyers compare quotes on the full landed figure, not the FOB number.
What a FOB price does and does not cover
| Included in a FOB price (seller pays) | Not included (buyer pays) |
|---|---|
| Product cost | Ocean or air freight |
| Supplier inland transport to the origin port | Cargo insurance |
| Export clearance in the origin country | US customs entry and duty |
| Loading on board the vessel | Port fees, drayage, and final delivery |
Turning that FOB number into a real per-unit cost is exactly what our landed cost walkthrough lays out, line by line.
Who books freight and who insures under FOB
The buyer. That is the point of buying FOB: you pick the forwarder, the carrier, the routing, and the speed, instead of inheriting whatever the seller bought and marked up. Insurance is nobody's obligation under FOB, so if you want the container covered beyond the carrier's COGSA limit of $500 per package, you buy cargo insurance yourself, on the declared value.
FOB vs FCA, EXW, and CIF
Purists note that containers are delivered to terminals, not lifted over a rail, which is why Incoterms recommends FCA for containerized cargo; in practice, Asia trade still runs on FOB and the difference rarely bites. EXW sits at the other extreme, and CIF is the term you will see quoted right next to FOB on supplier price sheets. The table sorts them by what each one actually costs a US importer.
FOB vs the terms next to it on a supplier quote
| Term | Who clears export | Who books main freight | Risk transfers | Best for a US importer |
|---|---|---|---|---|
| EXW | Buyer | Buyer | Seller's premises | Rarely, only with your own origin presence |
| FCA | Seller | Buyer | Handover to carrier | Containers, the cleaner term on paper |
| FOB | Seller | Buyer | On board the vessel | Default ocean buy from Asia |
| CIF | Seller | Seller | On board the vessel | Only when you accept the seller's routing |
Importers usually come out ahead on FOB, because you choose the carrier and see the real freight cost instead of a marked-up bundle.
FOB shipping point vs FOB destination in US domestic freight
This is the UCC world: a truckload from a vendor in Ohio, not a container from Shenzhen. The term decides two things, who pays the freight and when the goods legally become the buyer's.
FOB shipping point vs FOB destination
| Question | FOB shipping point (origin) | FOB destination |
|---|---|---|
| Who pays the freight | Buyer | Seller, built into the price |
| Who owns the risk in transit | Buyer, from pickup | Seller, until delivery |
| When title transfers | At the seller's dock | At the buyer's dock |
| When the seller books revenue | At shipment | At delivery |
| Where the buyer carries inventory | In transit, on its books | On receipt |
FOB shipping point
Also written FOB origin, and it is the default in most trades. Ownership and risk transfer the moment the carrier picks up at the seller's dock. The buyer pays the freight, and if the truck crashes in Kansas, the loss is the buyer's claim.
FOB destination
The mirror image: the seller owns the goods, and the risk, until they arrive at the buyer's door. The seller pays the freight and builds it into the price. Large retailers often force vendors onto FOB destination for exactly this reason: nothing is theirs until it hits their dock.
Freight collect, prepaid, and prepaid and add
Who owns the risk and who physically pays the carrier are separate questions. Freight collect means the buyer pays the carrier directly; freight prepaid means the seller pays; prepaid and add means the seller pays the carrier and invoices the buyer. Any of these can be attached to either FOB variant, which is how you get combinations like "FOB origin, freight prepaid": the buyer owns the goods in transit while the seller pays the truck.
KEY TAKEAWAY If a US purchase order says only "FOB" with no place named, it is ambiguous and it will cost you the first time a shipment is damaged. Always write "FOB shipping point" or "FOB destination", and for imports write "FOB, named port", for example "FOB Ningbo".
How FOB terms hit the books
Accountants care about FOB because it sets the revenue and inventory date. Under FOB shipping point, the seller books the sale when the goods leave, and the buyer carries inventory in transit on its own balance sheet. Under FOB destination, both events wait for delivery. At year-end, that difference decides whose books a container on the water belongs on, which is why auditors read freight terms. Large marketplaces complicate the picture, they generally take ownership at their inbound dock regardless of labels, but for B2B trades the FOB term is the controlling fact.
Common FOB mistakes importers make
The expensive ones repeat. Assuming a FOB price includes shipping, then meeting the real number at booking time. Leaving the cargo uninsured because "the supplier handles shipping", when under FOB nobody is required to insure and the carrier's liability caps at $500 per package. Writing "FOB" in a US purchase order without naming shipping point or destination, which invites a dispute the first time a shipment is damaged. And quoting Incoterms FOB on an air shipment, where the rule technically does not apply and FCA is the correct term.
How Platton helps you buy and ship on FOB
On FOB terms, everything after the vessel loads is yours to manage. That is the half of the trade Platton runs for US importers, quoted from the FOB port forward so the number you plan on is the number you pay.
One quote from the FOB port to your door
We price the whole buyer's side of an FOB move on one sheet: ocean or air freight, clearance, duty exposure, drayage, and delivery. No inherited seller markup, no surprise line at booking.
The carrier and routing decision, made with you
FOB hands you the freight choice, so we use it. You get the sailing, the carrier, and the speed that fit your restock calendar, with the surcharges visible instead of buried in a CIF bundle.
Insurance and clearance handled, not assumed
Because nobody insures cargo under FOB unless they choose to, we quote cargo insurance on declared value up front, and file customs clearance through licensed customs brokers on the same file.
The whole US side, one owner
Booking the sailing, tracking the container, clearing it, and delivering it is the work a first-time FOB importer underestimates. One coordinator owns all of it. The mechanics of the China lane specifically are in our shipping from China to USA guide.
Get an FOB-to-door import quote
Common Questions About FOB Terms
Who pays freight under FOB shipping point?
The buyer. Cost and risk both transfer at the seller's dock, so the freight bill and any transit loss belong to the buyer from the moment the carrier picks up. If the goods are damaged in transit, the buyer files the claim, not the seller, which is why buyers on FOB shipping point terms should carry their own cargo coverage.
Is FOB shipping point the same as FOB origin?
Yes. The two labels are interchangeable; both put ownership and risk on the buyer from the moment the carrier picks up. FOB destination is the opposite arrangement, where the seller keeps risk and pays the freight until the goods reach the buyer's dock.
How do the journal entries differ between shipping point and destination?
Under shipping point, the seller recognizes revenue at shipment and the buyer records the goods as inventory in transit on its own balance sheet. Under destination, both events wait for delivery. The FOB term written on the purchase order is what an auditor checks against the cutoff date at period end, so it is not just a logistics detail.
Does a FOB price include shipping?
No. A FOB price ends at the origin port with the goods loaded on the vessel. Ocean or air freight, cargo insurance, US duty, port fees, drayage, and final delivery all sit on top of it, and together they commonly add 10 to 30 percent or more to the invoice.
Is FOB the same as Ex Works?
No. Under EXW the buyer takes over at the seller's premises, including export clearance and loading, which a US importer without a presence in the origin country is poorly placed to handle. Under FOB the seller handles origin formalities and delivers the goods on board. For an importer, FOB carries far less origin-side risk than EXW.
What do importers gain, and give up, by buying FOB?
You gain control: the freight decision, the forwarder and carrier choice, visibility into every cost line, and usually a lower total than the freight margin hidden in a CIF price. You give up the seller's convenience: risk is yours from the moment of loading, insurance exists only if you arrange it, and the US-side logistics are your job to manage, which is exactly the work a first-time importer tends to underestimate.
How does insurance work under FOB?
It does not exist unless someone buys it. Risk sits with the buyer from loading, the ocean carrier's liability is capped at $500 per package under COGSA, and cargo insurance on declared value is the buyer's decision to make. For a full container of goods, that COGSA cap is rarely anywhere near the real value at stake.
Related Freight Forwarding Guides
Incoterms 2020 explained: where FOB sits among all eleven rules.
Landed cost: turning a FOB price into the real per-unit cost.
What a freight forwarder does for US importers: who runs the buyer's half of an FOB shipment.
