Free On Board (FOB) is a shipment term. We use this term to indicate whether the seller or the buyer is liable for damaged or destroyed goods in transit. We will discuss “FOB origin” and “FOB destination”. The most common international trade terms are聽Incoterms, which publishes International Chamber of Commerce (ICC).

“FOB origin” means the buyer pays the shipping cost from the factory or warehouse and will be ownership of the goods as soon as it leaves its point of origin. “FOB destination” means聽the聽seller聽retains the risk of loss until the goods reach to the buyer location.

Contracts involving international transportation often contain abbreviated trade terms that describes matters such as the time and place of delivery, payment,聽when the risk of loss shifts from the seller to the buyer, and who pays the costs of freight and insurance.

Assume, A is a clothing manufacturer that sells jeans to B using FOB origin term. If A ships jeans to B using the term FOB origin,聽B is liable for any聽loss while the goods are in transit. On the other hand,聽if the goods are shipped by FOB destination, A retains the risk of shipment loss.

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