FOB: what Free on Board means on a factory quote

Who does what under FOB

FOB splits one shipment into two halves at the moment the goods go on board. The seller handles everything on the origin side of that line, and you handle everything after it.

The insurance row is the one that catches first-time importers. The risk of a crushed or wet carton at sea is already yours, but no one is obliged to insure it. Buy cargo cover from the loading port, or ask the forwarder who books your freight to arrange it.

The port charges inside an FOB price

Under FOB, as an ICC Academy guide puts it, the transfer of risks and costs occurs at the agreed port of shipment^[2], once the goods are on board. So the trucking to the port, the export paperwork and the loading charges at the port of shipment belong inside the FOB price. If a quote marked FOB adds origin port or loading charges as extra lines for you to pay, it is not a plain FOB price. Ask the supplier to fold them in, or to restate the quote on another rule so you can compare like with like.

FOB and containers

FOB is to be used only for maritime or inland waterway transportation^[2], and it assumes the seller's job ends when the goods go on board. When the goods are handed to the carrier before that, for example at a container terminal, an ICC Academy guide says FCA (Free Carrier) is the more appropriate Incoterms® rule^[1]. FCA moves delivery to the point where the carrier takes the goods, so the risk passes where the handover actually happens. Ask for quotes on the same split: FOB at a named port of shipment for goods loaded directly on board, and FCA at a named place for goods handed to a carrier before loading.

FOB in a US contract can mean something else

"F.O.B." is also a term in US commercial law, which is where domestic purchase orders get "FOB origin" and "FOB destination". Under the Uniform Commercial Code, FOB the place of shipment means the seller must ship the goods and bear the expense and risk of putting them into the possession of the carrier^[4]. FOB the place of destination means the seller must at his own expense and risk transport the goods to that place and there tender delivery of them^[4]. That second meaning keeps the risk on the seller all the way to the destination, which the Incoterms rule never does.

To keep the two apart, write the rule, the named port and the edition together, as in "FOB, named port of shipment, Incoterms 2020". If your purchase contract is under US law, it can also say that the Incoterms 2020 rule applies in place of any Uniform Commercial Code definition of the same term.

What US customs values on an FOB price

For goods entering the United States, the price that duty is worked out on is exclusive of any charges, costs, or expenses incurred for transportation, insurance, and related services incident to the international shipment^[5]. The ocean freight and insurance you pay after loading are therefore outside the dutiable value.

The trucking from the factory to the port is different, because it sits inside the FOB price. As a general rule, a charge for that foreign inland freight is part of the transaction value to the extent included in the price^[6], even if the invoice lists it on its own line. It comes out only if the charges are identified separately and they occur after the merchandise has been sold for export to the United States and placed with a carrier for through shipment^[6], which CBP expects a through bill of lading to show. On a plain FOB order, expect to pay duty on the full FOB price.

Example: an FOB quote landed in the US

One FOB order, landed at a US warehouse

Line	Amount
FOB Ningbo price, 1,500 units at $6.10, including the trucking to the port	$9,150
Ocean freight to Long Beach and cargo insurance, booked by you	$1,040
Value for US duty: the full FOB price, trucking included	$9,150
Duty at 12% (assumed)	$1,098
Entry fees, customs broker, bond, destination port charges and delivery	$540
Landed cost	$11,828
Landed cost per unit	$7.89

Illustrative figures, not a quote. Real prices depend on the spec, quantity and factory.

The unit price on the quote is well below the landed cost per unit, because FOB leaves the second half of the journey to you. The landed figure is what to compare when another factory quotes EXW or CIF, and the import duty and landed cost guide shows how to find the real duty rate.

Before you accept an FOB quote

• The quote names the port of shipment and says "Incoterms 2020".
• Loading and origin port charges are inside the price, not added for you.
• Goods that go into a container at a terminal are quoted FCA instead.
• Cargo insurance is booked from the moment the goods are on board.
• Your customs broker gets a commercial invoice that shows the FOB value.

On an FOB order you are normally the importer of record, so the freight, insurance, entry and duty after the named port are yours to arrange, whichever manufacturer quotes you.