Lesson 9 / 11 · sea and inland waterway only
FOB Free On Board
The seller delivers when the goods are on board the ship nominated by the buyer at the named port of shipment. The buyer books and pays the sea freight and carries the risk from loading. Made for bulk and break-bulk cargo loaded directly on a ship.
Reviewed by: pending — expert review by TermVisa's editor (retired VP, international transport) in progress · Last updated
Scenario
50,000 tonnes of wheat loaded on a bulk carrier in Western Australia (sea, dry bulk)
FOB Kwinana Incoterms® 2020
- Seller
- Grain exporter, Perth, Australia
- Buyer
- Flour mill, Surabaya, Indonesia
- Transport
- Sea — dry bulk, Kwinana → Surabaya
The seller, a grain exporter in Perth, Australia, sells 50,000 tonnes of wheat to the buyer, a flour mill in Surabaya, Indonesia, under FOB Kwinana Incoterms® 2020. Transport is by sea in bulk: the buyer charters a bulk carrier and nominates it to the seller. The seller railed the wheat from country silos to the Kwinana grain terminal and has it loaded through the terminal's ship loader. The buyer pays the voyage to Surabaya and clears the wheat there.
Illustrative scenario: companies are generic, and real contracts, carriers and countries add their own conditions.
The journey, stage by stage
Top bar: who pays for each stage. Bottom bar: who bears the risk of loss or damage. The red line marks where risk passes.
- Seller
- Buyer
- Depends on contract / carrier or port practice
- Point where risk passes
⚠ Risk passes once the wheat is on board the buyer's ship at Kwinana.
- Rail to the port of loading — Seller: Rail from country silos to the Kwinana grain terminal
- Export clearance — Seller: Australian export formalities and grain inspection
- Departure terminal handling and loading — Seller: Terminal storage and handling
- Lifting the cargo on board — Seller: Loading through the ship loader
- Main carriage — Buyer: Voyage Kwinana → Surabaya on the buyer's chartered bulk carrier
- Arrival terminal: unloading and handling — Buyer: Discharge at Surabaya
- Import clearance, duties and taxes — Buyer: Indonesian import clearance, duties and taxes
- On-carriage to the named place — Buyer: Delivery to the mill
Who does what in this scenario
| Party | What they arrange / do | Who pays (them / what they pay) | Risk they carry | Key documents |
|---|---|---|---|---|
| Seller / exporter | Has the wheat at the terminal, cleared for export and inspected, and loads it on the buyer's nominated ship within the agreed window. | Everything up to on board: rail, terminal, loading (per contract and charter terms), export formalities. | Until on board at Kwinana. | Commercial invoice, mate's receipt, weight and quality certificates, phytosanitary certificate, proof of export. |
| Buyer / importer | Charters and nominates the ship in time, pays freight, insures, discharges and clears. | Sea freight, insurance, discharge, duties and taxes; demurrage if its ship is late or slow. | From on board at Kwinana. | Charter party, bill of lading, import declaration. |
| Origin freight forwarder | In bulk trades, the seller's shipping department or a port agent coordinates with the terminal and the ship. | Seller. | Its own errors. | Loading reports. |
| Destination freight forwarder | The buyer's agent in Surabaya handles discharge and clearance. | Buyer. | Its own errors. | Discharge reports. |
| Ocean carrier (shipping line) | The shipowner carries the wheat under the buyer's charter and issues bills of lading on loading. | Buyer. | Per charter party and bill of lading. | Bill of lading. |
| Cargo insurer | No obligation. The buyer insures from on board; the seller up to that point. | Each for its part. | Per policy. | Policies. |
| Customs broker (export) | Files the export declaration in Australia for the seller. Most countries require one; value thresholds, exceptions and export-control checks vary — ask the broker. Grain also needs export inspection and a phytosanitary certificate. | Seller. | Answers to its client for filing errors; the exporter stays responsible to customs. | Export declaration and release (proof of export). |
| Customs broker (import) | Classifies the goods, files the import declaration in Indonesia for the buyer as importer, pays duties and import taxes on its account and obtains release. | Buyer. | The buyer remains responsible to customs as importer; the broker answers to it for its own errors. | Import declaration, duty and tax receipts, release. |
| Banks (letters of credit) | Bulk grain is often paid by documentary credit against a full set of 'shipped on board' bills of lading. | As negotiated. | Documentary risk. | Bills of lading, certificates. |
| Terminals and ports | The grain terminal stores and loads; loading rate and berth waiting time drive demurrage. | Seller up to on board, per contract. | Its own handling and storage. | Loading reports. |
✗ Common mistakes
- Using FOB for containers handed over at an inland or port terminal: risk passes long after the seller loses control (see the case).
- Buyer nominating its ship late, then blaming the seller for missing the window.
- Sale contract and charter party disagreeing on laytime and loading costs.
- Writing 'FOB destination' as in some domestic US usage — that is not the Incoterms® rule.
? What to ask before you sign
- The buyer (Seller) When will you nominate the vessel, and what loading window do we agree?
- The terminal (Seller) What loading rate can you guarantee, and how are waiting times handled?
- Your cargo insurer (Buyer) Does my cover start at loading on board at Kwinana?
- Your bank (Seller) Which certificates and bill-of-lading wording does the credit require?
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