FOB (Free On Board): what it means in grain trade
5 min read
FOB is the most common basis for grain sold from Black Sea ports. Here is what the seller and the buyer each cover, when risk passes and what to check in an FOB contract.
FOB stands for Free On Board. It is one of the 11 Incoterms 2020 rules published by the International Chamber of Commerce (ICC). Under FOB, the seller delivers the goods on board a vessel nominated by the buyer at the named port of shipment. From that moment the risk of loss or damage passes to the buyer.
In grain trade, a price is always quoted together with the rule and the port, for example "per tonne FOB Chornomorsk". Without the port, an FOB price cannot be compared with other offers.
Who does what under FOB
| Obligation | Seller | Buyer |
|---|---|---|
| Export clearance and export documents | yes | no |
| Delivery to the port and loading on board | yes | no |
| Nominating the vessel | no | yes |
| Main sea freight | no | yes |
| Cargo insurance | no | in its own interest |
| Import clearance and duties | no | yes |
| Risk | until the goods are on board | from the moment they are on board |
When risk passes
Risk passes when the goods are on board the vessel. The ship's rail no longer matters, as it did before Incoterms 2010. For bulk grain loaded by conveyor, this means risk passes as the grain enters the hold.
FOB is for sea and inland waterway transport
FOB applies only to sea and inland waterway shipments. Bulk grain loaded onto a vessel or a Danube barge fits FOB well. For grain in containers, the ICC recommends FCA, because the container is handed over at the terminal, not on board.
What to agree in an FOB grain contract
Incoterms define delivery, risk and costs. They do not cover loading terms, quality or payment, so the contract has to:
- name the port and, where possible, the terminal;
- set the shipment period and how many days' notice the buyer gives when nominating the vessel;
- set the load rate, laytime and demurrage or despatch;
- set the quantity tolerance, for example ±5% at the buyer's option;
- say whether quality and weight at loading are final, and which surveyor issues the certificates;
- list the documents the seller provides: phytosanitary certificate, certificate of origin, quality and weight certificates;
- refer to a standard contract form, for example a GAFTA form for FOB terms.
A common variant is FOB ST (stowed and trimmed): the seller also pays for stowing and levelling the grain in the hold.
FOB vs CIF
| FOB | CIF | |
|---|---|---|
| Freight to the destination port | buyer | seller |
| Cargo insurance | buyer, in its own interest | seller, minimum cover |
| Risk passes | on board at the port of shipment | on board at the port of shipment |
| Price is quoted at | port of shipment | port of destination |
Under both rules risk passes at the port of shipment. The difference is who books and pays for the voyage. More on this in CIF: what it means in grain trade.
Comparing FOB offers
To compare an FOB offer with a CIF offer, add freight and insurance to the FOB price for your destination. On INBULK, every offer states its basis and port, so you can bring prices to one basis before you negotiate. How INBULK works.