Free on board definition
/What is Free on Board?
Free on board is a delivery term, indicating that the seller of goods is obligated to deliver the goods to a vessel that will then deliver the goods to the customer. The obligations of the seller end when the goods are on board the vessel. At this point, the risks of ownership pass from the seller to the buyer, who is now responsible for the cost of transport, as well as any clearance fees incurred during transport.
The meaning of the term originally only encompassed ships as delivery vehicles, but it is now understood to include other forms of transport, such as trucks and trains.
Related AccountingTools Courses
FAQs
How Does FOB Differ From CIF (Cost, Insurance, and Freight)?
FOB specifies the point at which ownership and risk transfer from the seller to the buyer, either at the shipping point or at the destination, depending on the agreed terms. CIF goes further by requiring the seller to cover the cost of goods, marine insurance, and freight charges until the goods arrive at the buyer’s port. In short, FOB focuses on the transfer of risk, while CIF bundles in additional seller responsibilities for cost and insurance.