FOB, “Free On Board”

FOB, “Free On Board”, is a term in international commercial law specifying at what point respective obligations, costs, and risk involved in the delivery of goods shift from the seller to the buyer under the Incoterms standard published by the International Chamber of Commerce. FOB is only used in non-containerized sea freight or inland waterway transport. As with all Incoterms, FOB does not define the point at which ownership of the goods is transferred.

The term FOB is also used in modern domestic shipping within the United States to describe the point at which a seller is no longer responsible for shipping cost.

Ownership of a cargo is independent from Incoterms. In international trade, ownership of the cargo is defined by the bill of lading or waybill.

Bill of Lading

A bill of lading (/ˈleɪdɪŋ/) (sometimes abbreviated as B/L or BOL) is a document issued by a carrier (or their agent) to acknowledge receipt of cargo for shipment. Although the term historically related only to carriage by sea, a bill of lading may today be used for any type of carriage of goods.[1]

Bills of lading are one of three crucial documents used in international trade to ensure that exporters receive payment and importers receive the merchandise.[2] The other two documents are a policy of insurance and an invoice.[3] Whereas a bill of lading is negotiable, both a policy and an invoice are assignable. In international trade outside the United States, bills of lading are distinct from waybills in that the latter are not transferable and do not confer title.

Nevertheless, the UK Carriage of Goods by Sea Act 1992 grants “all rights of suit under the contract of carriage” to the lawful holder of a bill of lading, or to the consignee under a sea waybill or a ship’s delivery order.

A bill of lading must be transferable,[4][5] and serves three main functions:

  • it is a conclusive receipt,[6] i.e. an acknowledgement that the goods have been loaded;[7] and
  • it contains or evidences[8] the terms of the contract of carriage; and
  • it serves as a document of title to the goods,[9] subject to the nemo dat rule.

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