What is FOB price? Instructions for pricing details and applicable conditions

Article overview

What is the FOB price? This is a question that helps the parties in the shipping contract clearly understand FOB prices and delivery conditions, from which businesses can optimize costs and minimize risks. FOB prices help buyers control shipping costs and choose flexible delivery methods. Accurately calculating FOB prices not only assists in negotiating contracts but also helps businesses determine the actual costs for their export or import shipments.

Instructions on how to calculate and apply FOB prices
Instructions on how to calculate and apply FOB prices

What is FOB price?

FOB (Free on board) price is the price at the border gate in the seller’s country. This price includes all costs of transporting the shipment to the port, export tax and export procedure tax. Note that the FOB price does not include ocean shipping costs and ocean insurance costs.

In a commercial contract, if the delivery condition is FOB, it is necessary to clearly state: FOB + Name of loading port.

How to calculate FOB price

FOB price will be calculated based on the following parameters:

FOB price = Price of finished goods + cost of container lifting + cost of inland container towing + cost of opening customs declaration + cost of applying for a certificate of origin (if required by the customer) + clamping cost Maintenance + quarantine fumigation costs.

Conditions apply FOB

Conditions for applying FOB will be different between Incoterms versions. The following are conditions for applying FOB according to Incoterms 2020 version:

  • Sea or inland water transport: FOB only applies to transactions transporting goods by sea or inland waterway, where the goods are delivered when loaded onto the ship at the export port.
  • Nominated port of loading: The seller must deliver the goods on board the vessel nominated by the buyer at the agreed port of loading. Once the goods are loaded onto the ship, responsibility and risk will transfer to the buyer.
  • Loading on board: The seller must ensure delivery of the goods on board, or in some cases, the seller may also buy back the goods already delivered on board during transit (ex: chain sales). This means that the goods must be placed on the ship, not just delivered at the port without being on the ship.
  • Does not apply to goods in containers or delivered to the carrier before the goods are on board the ship: FOB terms do not apply when the goods have been delivered to the carrier before being loaded onto the ship, as in the case of goods packed in containers or delivered at the port yard. In these cases, the FCA (Free Carrier) term should be used instead.

In short, FOB will apply when the goods are delivered on board the ship at the port of loading, and this condition is only suitable for sea or inland waterway transport.

When is FOB applied in transporting goods?
When is FOB applied in transporting goods?

Responsibilities of the parties when applying FOB terms

When applying FOB (Free On Board) delivery conditions, the responsibilities of the parties (seller and buyer) are clearly defined, as follows:

  1. Responsibilities of the seller:
  • Providing goods and documents: The seller must provide goods and commercial invoices in accordance with the sales contract. At the same time, the seller needs to provide any relevant documents, which can be traditional paper documents or electronic documents, if agreed by the parties or according to customary regulations.
  • Delivery on board: The seller must deliver the goods by placing the goods on the vessel nominated by the buyer at the port of loading. If the buyer does not specify a specific place of loading, the seller may choose a suitable place at the named port of loading. The seller must make delivery on the date or within the agreed period.
  • Bear the risk until the goods are on board the ship: Responsibility and risk for the goods transfers from the seller to the buyer when the goods are loaded on the ship.
  1. Buyer’s responsibilities:
  • Payment for goods: The buyer must pay for the goods according to the terms specified in the sales contract.
  • Receiving the goods: The buyer is responsible for receiving the goods when they have been delivered on board the vessel as stipulated in the contract. This means that the buyer must take over the goods after they have been loaded on board the vessel at the port of export.

In short:

  • The seller is responsible for delivering the goods on board and providing the necessary documents to the buyer.
  • The buyer is responsible for paying for the goods and receiving the goods after they are delivered to the ship.
Rights and obligations of the parties when applying FOB in transporting goods
Rights and obligations of the parties when applying FOB in transporting goods

Consulting services on issues related to FOB in maritime and inland waterway transport

FOB price is an important factor in determining ocean and inland waterway shipping costs, helping you optimize costs related to international deliveries. To better understand how to calculate FOB prices and applicable conditions, Long Phan would like to introduce in-depth consulting services to help you solve complex issues related to FOB in maritime and inland waterway transport. Services at Long Phan will include:

  • Detailed explanation of FOB delivery conditions in sea and inland waterway transport, helping you choose the appropriate shipping method.
  • Provides an accurate FOB price calculation method, including shipping costs, insurance and other additional fees.
  • Support drafting clear international sales contracts, ensuring rights and avoiding unnecessary disputes.
  • Help you choose the optimal shipping method for FOB deliveries, including vessel selection, loading port and other factors.
  • Consulting on securing goods during transportation, minimizing the risk of loss or damage of goods.
  • Guide you to carry out customs procedures and pay taxes properly when importing and exporting under FOB conditions.
  • Helps you analyze costs related to transportation and provide economical solutions, optimizing costs for the delivery process.
  • We are committed to helping you comply with international regulations and standards on maritime and inland water transport, helping to avoid unnecessary violations.

At Long Phan, we understand that every international transaction is an opportunity for business development. With a team of experienced experts in the field of maritime and inland waterway transportation, Long Phan is committed to providing you with the most optimal, fastest and most effective solutions. Contact us immediately via the hotline: 0906735386 for free advice and support in resolving issues related to FOB in maritime and inland waterway transport.