FOB (Free on Board)

FOB (Free on Board) is an international shipping term indicating that the seller is responsible for goods until they are loaded onto the buyer's vessel, at which point the buyer assumes all risk and cost. This Incoterm defines the exact moment when liability transfers from seller to buyer during the shipping process. The FOB point determines who pays for shipping, insurance, and who bears the risk if goods are damaged or lost during transit.

Why it matters for e-commerce brands

For Shopify and DTC merchants sourcing products from overseas manufacturers, understanding FOB terms is crucial for accurate cost calculations and inventory planning. The FOB designation affects your landed costs, as you'll need to budget for freight, customs, insurance, and other expenses from the FOB point to your warehouse. Negotiating FOB terms also impacts cash flow timing and risk management, since you assume responsibility for the goods once they're loaded onto the vessel at the origin port.

Example

A Shopify merchant ordering candles from a supplier in China negotiates FOB Shanghai terms. The supplier covers all costs to deliver the candles to Shanghai port and load them onto the shipping vessel. Once loaded, the merchant becomes responsible for ocean freight charges ($3,000), marine insurance ($200), customs duties and fees ($1,500), and domestic delivery from the U.S. arrival port to their fulfillment center ($800). If the shipment is damaged during the ocean voyage, the merchant—not the supplier—files the insurance claim and handles the loss.

Related terms

• Incoterms (International Commercial Terms)
• EXW (Ex Works)
• CIF (Cost, Insurance, and Freight)
• Landed cost
• Bill of lading