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What Does FOB Mean

Shashank Nakate Feb 6, 2019
To get into the depths of various terms related to shipping, one should understand what FOB means. The following write-up tries to explain the meaning of this term as per international and North American standards.
To understand the meaning of FOB, one should first understand what it stands for. The abbreviation stands for the term "Free On Board" or "Freight on Board". In simple words, FOB is the term used to indicate location at which merchandise ownership is transferred from the seller to the buyer.
This term provides specifications as to who (buyer or seller) is going to pay for the costs related to shipment of goods. Its definition changes from region to region. The Incoterm standards defined by the International Chamber of Commerce are used in most of the countries.
The meaning of FOB varies from region to region, so it should be understood in various contexts. The information about what FOB means in different regions/contexts is provided here.

Incoterm Standards

As per the Incoterm standards, the term "Free On Board" is used to refer to the port of loading. The seller has to pay for the transportation of goods to the port and also bear the loading costs.
Buyers, on the other hand, are charged for marine freight transport and other services offered at the arrival port. These services include unloading, insurance, and transportation. It means that the responsibility of seller is limited, up to the point where goods are loaded into ships. It is then the buyer who has to bear the charges as well as the risk.

North American Standards

In the US and Canada, the term "Freight On Board" is commonly used. The Foreign Trade Definitions formulated in the year 1941 is the source/origin of this term.
It is necessary to understand the meaning of two terms, "FOB Shipping Point" and "FOB destination" in order to understand the standards of North America. The first term means that the buyer takes charge of goods from seller's premises itself, and he also bears the transportation costs.
The term "FOB origin" can be used as a substitute for FOB Shipping Point. The meaning of second term is opposite to that of the FOB origin, in a sense that seller pays for transportation as well as takes responsibility of goods till it reaches the buyer.
The term FOB, along with ports, can also be used in reference to a town. In case of ports, the buyers assume responsibility as soon as the goods are loaded in the ship. This term, in context of towns, means that buyers take charge of the goods as soon as the sellers turn them loose.

Other FOB Terms

This abbreviation is also used for many other terms such as Federal Office Building, Forward Operating Base, Fresh off the Boat, etc. The Federal Office Buildings are present in various cities of the United States. The FOB of New York is listed as one of the historic places in America.
The term Forward Operating Base is a term used in military operations. In this context, it is a secured and forward position, useful in supporting tactical operations. The term "Fresh off the Boat" is used in reference to recently arrived immigrants, who are yet to jell properly with the local culture.
Disclaimer: This is for reference purposes only and does not directly recommend any specific financial course of action.