FOB: Free On Board, and what closeout sellers mean by it
FOB, or Free On Board, is an Incoterms 2020 rule for sea and inland waterway transport: the seller clears the goods for export and delivers them on board the vessel the buyer has named at the port of shipment, and risk passes to the buyer at that moment. In US domestic closeout deals, "FOB our warehouse" usually means something different: the buyer collects at the seller's dock.
Reviewed by Tyler Kober · Updated
Key takeaways
- Under Incoterms 2020, FOB is only for sea and inland waterway transport, with risk passing when goods are on board.
- For containers handed to a carrier at a terminal or warehouse, the ICC recommends FCA rather than FOB.
- US domestic quotes like FOB warehouse use an older commercial meaning, not the Incoterm; ask what the seller means.
What does FOB mean?
FOB means Free On Board. Under Incoterms 2020, it is a rule for sea and inland waterway transport only. The seller clears the goods for export and delivers them on board the vessel the buyer has nominated, at a named port of shipment. Risk passes to the buyer once the goods are on board. The buyer pays the main ocean freight and handles import at destination.
How FOB is used in closeout deals
You will see FOB used two ways in the closeout trade, and they are not the same.
1. FOB as an Incoterm (international). "FOB [named US port], Incoterms 2020" means the seller gets the goods on board the ship at that port, cleared for export. This fits bulk cargo loaded directly on a vessel. It fits container cargo less well, because containers are handed to the carrier at a terminal or packed at a warehouse days before loading. The ICC recommends FCA in those cases.
2. FOB as a US domestic term. "FOB our warehouse" or "FOB shipping point" in a US quote comes from older domestic commercial usage, not Incoterms. In closeouts it typically means the price is for goods at the seller's dock, and the buyer arranges the truck. Who loads the truck, and when risk passes, should still be written down.
| Incoterms FOB | Domestic "FOB warehouse" | |
|---|---|---|
| Transport | Sea or inland waterway | Usually truck |
| Delivery point | On board the vessel at the named port | Seller's dock |
| Export clearance | Seller | Not relevant |
| Main freight | Buyer | Buyer |
Example
An exporter buys a container of mixed apparel. The seller quotes "FOB warehouse." The exporter asks whether that means the Incoterm. It does not: the seller means the buyer's forwarder collects at the dock. They agree to write the contract as FCA at the seller's warehouse under Incoterms 2020, with the seller loading the container and handling export clearance.
The common confusion
Buyers assume FOB always means "the seller pays to get it to the port." In domestic quotes it often means the opposite: you pick it up. And even in export, FOB means on board the ship, not delivered to the terminal gate. Compare with CIF, where the seller also pays ocean freight and minimum insurance, and EXW, where the seller does almost nothing. The full set is under Incoterms, and the freight and logistics guide covers how loads move.
Related terms
Frequently asked questions
What does FOB warehouse mean in a closeout quote?
In US domestic deals it usually means the price is for goods at the seller's warehouse and the buyer arranges and pays for pickup and freight. It is a domestic shipping term, not the Incoterms FOB rule, which applies to goods loaded on a ship. Confirm who loads the truck and when risk passes.
Who pays freight under FOB?
Under Incoterms 2020 FOB, the seller pays to deliver the goods on board the vessel at the port of shipment, including export clearance. The buyer pays the ocean freight, insurance if wanted, and everything from there, including import duties and clearance at destination. The named port follows the term, such as FOB a named US port.
Should export closeout deals use FOB or FCA?
Most closeout export loads are packed in a container at the seller's warehouse or handed to the carrier at a terminal, well before they are on board a ship. The ICC recommends FCA for that situation, because under FOB the seller carries risk while the container sits at a terminal it does not control.
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