Incoterms 2020 · Sea and inland waterway
FOB (Free On Board): who pays what
The short answer
Who pays what under FOB
| Step | Under FOB |
|---|---|
| Export clearance | Seller |
| Main freight | Buyer |
| Cargo insurance | Buyer (not required) |
| US customs clearance | Buyer |
| US import duty and fees | Buyer |
| Unloading at destination | Buyer |
| Risk passes to the buyer | When the goods are on board the vessel at the port of loading |
In the contract, FOB is followed by the port of loading: for example "FOB Shanghai, Incoterms 2020".
What FOB means for a US importer
FOB is the term most suppliers in China and the rest of Asia quote. It suits a US importer that wants to book its own freight: you (or your forwarder) choose the carrier, the sailing and the price, and the supplier's price covers getting the goods loaded at its port.
For containers, the risk point is awkward: the box is handed to the carrier at the terminal days before loading, but under FOB the seller keeps the risk until it is on board. The ICC points container shipments to FCA for that reason, although FOB is still the term most Asian suppliers quote on containers.
FOB in an international sales contract is not the same as "FOB shipping point" or "FOB destination" in US domestic sales. Those are domestic delivery terms from the Uniform Commercial Code, not Incoterms rules, so an import contract should say "Incoterms 2020" after the term.
US customs value under FOB
An FOB price carries no ocean freight or insurance, so it is usually the starting point for the US dutiable value. This is why US customs values are often described as "FOB value".
Check the duty for your product in the Gateway tariff calculator.
Watch out for
- Name the port ("FOB Ningbo", not "FOB China"). The port decides the origin charges the supplier covers.
- Agree who pays origin terminal handling; ports differ in what the FOB seller is expected to cover.
FOB questions
Who pays freight under FOB?
The buyer. Under FOB the buyer contracts and pays the ocean freight from the port of loading.
When does risk pass under FOB?
When the goods are on board the vessel at the named port of loading.
What is the difference between FOB and CIF?
Under CIF the seller also pays the ocean freight and minimum insurance to the destination port. Risk passes at the same point, on board at the port of loading.
Is the US customs value the FOB value?
Usually. US customs value is the price paid for the goods without international freight and insurance (19 U.S.C. 1401a(b)(4)(A)), which for most shipments works out to the FOB price.
Sources
- International Chamber of Commerce: Incoterms 2020
- International Trade Administration (trade.gov): Know Your Incoterms
- 19 U.S.C. 1401a(b)(4)(A): price actually paid or payable
Incoterms® is a registered trademark of the International Chamber of Commerce. This page explains the rule in our own words; the ICC publication is the authoritative text.