Incoterms® 2020 · Sea and inland waterway only
FOB (Free On Board) under Incoterms® 2020
Under FOB the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment, or procures goods already so delivered. Risk passes to the buyer once the goods are on board; the buyer pays ocean freight and everything after. FOB is the most familiar rule for Vietnamese exporters.
- Risk transfer
- Risk passes to the buyer when the goods are on board the vessel nominated by the buyer at the named port of shipment.
- Cost transfer
- The seller pays all costs until the goods are on board, including export clearance; the buyer pays ocean freight, insurance and all costs thereafter.
- Mode of transport
- Sea and inland waterway only
- Insurance
- Not required, agreed between the parties
Who does what along the delivery chain
- 1Loading at seller's premisesSeller
- 2Export clearanceSeller
- 3Transport to port/terminal of departureSeller
- 4Loading onto main carriageSeller
- 5Main carriageBuyer
- 6Cargo insuranceNot required / negotiable
- 7Unloading at destinationBuyer
- 8Import clearanceBuyer
- 9Import duties & taxesBuyer
- 10Delivery to final destinationBuyer
Seller's obligations
- Provide the goods, a commercial invoice and suitable packaging.
- Transport the goods to the port of shipment and load them on board the vessel nominated by the buyer within the agreed period.
- Carry out and pay for export clearance.
- Bear costs and risks until the goods are on board.
- Provide proof of delivery and assist the buyer in obtaining the transport document.
- Notify the buyer that the goods have been delivered or that the vessel failed to take them.
Buyer's obligations
- Pay the price.
- Charter or book space, pay ocean freight and notify the seller of the vessel name, loading point and loading time.
- Bear risks and costs from the moment the goods are on board.
- Carry out and pay for import and transit clearance and import duties.
- Pay for unloading and charges at the port of discharge.
- Decide whether to insure the goods.
- Bear risks and costs if the vessel fails to arrive on time or to take the goods.
Use it when
- Bulk or break-bulk cargo loaded directly onto the vessel at the port.
- The buyer has good carrier contracts and wants to control sailing schedules.
- An importer wants to book its own freight and insure locally.
- String sales of goods already delivered on board.
Avoid it when
- Containers handed to the carrier at the yard before sailing, where FCA fits better.
- Air, road or rail transport.
- The buyer cannot charter a vessel or nominate a reliable forwarder.
Common mistakes
- Using FOB for air freight, for example "FOB Tan Son Nhat Airport".
- Naming the destination port instead of the port of shipment after FOB.
- Reading FOB in the US Uniform Commercial Code sense, which differs from FOB under Incoterms.
- Not agreeing who pays THC, documentation and seal fees at the port of export.
- Overlooking the risk the seller carries while the container sits in the yard before loading.
Practice in Vietnam
Most Vietnamese exporters still quote FOB, for example "FOB Cat Lai", "FOB Hai Phong" or "FOB Cai Mep". By custom, the seller pays origin local charges such as THC, B/L fee, seal fee, CFS charges for LCL and telex release fee where applicable; because these are not defined by Incoterms, they should be stated in the contract. FOB cargo from Vietnam is often nominated cargo, meaning the buyer nominates the forwarder or shipping line. With containers, the seller must gate the box into the yard several days before sailing yet carries the risk until it is loaded, which is why FCA is the better fit.
Worked example
A coffee exporter in Dak Lak sells 19.2 tonnes of green coffee to an Italian roaster on "FOB Cat Lai, Vietnam, Incoterms® 2020". The seller stuffs a 20-foot container, trucks it to Cat Lai, clears export customs and pays origin THC and the B/L fee. The buyer books space through its forwarder, pays ocean freight to Genoa, arranges its own insurance and bears the risk from the moment the container is loaded on board at Cat Lai.
Frequently asked questions
Does FOB risk pass at the ship's rail or when goods are on board?
The "ship's rail" concept was dropped in Incoterms 2010. Under Incoterms 2020, risk passes when the goods are on board the vessel.
Can FOB be used for containers?
Legally it can, but the ICC recommends FCA, because the seller hands the container to the carrier at the yard before sailing and loses control, while under FOB the risk stays with the seller until the container is on board.
Who pays origin THC under FOB?
By Vietnamese custom the seller pays origin THC, since it is incurred before the goods are on board. It should still be stated in the contract to avoid disputes.
How is customs value declared when importing FOB?
The importer must add ocean freight and international insurance to the FOB price to arrive at the customs value up to the first port of import.
Incoterms® is a registered trademark of the International Chamber of Commerce (ICC). This content is for general guidance and does not replace legal or banking advice for a specific transaction.
Incoterms® 2020 responsibility matrix
| Rule | Loading at seller's premises | Export clearance | Transport to port/terminal of departure | Loading onto main carriage | Main carriage | Cargo insurance | Unloading at destination | Import clearance | Import duties & taxes | Delivery to final destination |
|---|---|---|---|---|---|---|---|---|---|---|
| EXW | B | B | B | B | B | – | B | B | B | B |
| FCA | S | S | S | B | B | – | B | B | B | B |
| FAS | S | S | S | B | B | – | B | B | B | B |
| FOB | S | S | S | S | B | – | B | B | B | B |
| CFR | S | S | S | S | S | – | B | B | B | B |
| CIF | S | S | S | S | S | S* | B | B | B | B |
| CPT | S | S | S | S | S | – | B | B | B | B |
| CIP | S | S | S | S | S | S* | B | B | B | B |
| DAP | S | S | S | S | S | – | B | B | B | S |
| DPU | S | S | S | S | S | – | S | B | B | S |
| DDP | S | S | S | S | S | – | B | S | S | S |
- S Seller
- B Buyer
- S* Seller obligation (insurance)
- – Not required / negotiable
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