Legal Definitions - free on board

Definition: Free on board (FOB) is a term used in business contracts that outlines the responsibilities of the buyer and seller regarding the delivery, payment, and risk of loss of goods. The seller is responsible for clearing the goods for export, while the buyer arranges for transportation. The seller's delivery is considered complete when the goods pass the transporter's rail, and the buyer is responsible for all costs of carriage.

Example: A company in China sells 1000 widgets to a company in the United States. The contract states that the terms are FOB Shanghai. This means that the Chinese company is responsible for clearing the widgets for export and delivering them to the port in Shanghai. Once the widgets are loaded onto the ship, the delivery is considered complete, and the risk of loss passes to the US company. The US company is responsible for all costs of transportation from Shanghai to their warehouse.

Explanation: This example illustrates how FOB works in an international business transaction. The Chinese company is responsible for getting the widgets to the port, but once they are loaded onto the ship, the US company takes over responsibility for the goods. This means that if anything happens to the widgets during transportation, the US company is responsible for any losses or damages.