Common FOB Mistakes and How to Avoid Them

FOB might seem straightforward:

Seller loads goods on board and buyer takes over. Yet many practical problems arise from vague language, wrong assumptions, or mismatched logistics. This friendly guide outlines common FOB mistakes and gives clear, actionable ways to prevent them.

Mistake 1: Failing to specify the Incoterms version and named place

Why it matters: Saying simply FOB without declaring the Incoterms year or the exact location (for example, FOB Port X) opens the door to disagreements about when risk passes. Incoterms 2010 differ in some details from Incoterms 2020, and the named place defines the delivery point.

How to avoid it: Always include the full clause in the sales contract, such as FOB Shanghai Incoterms 2020, and clearly state if the delivery point is dock, ship, or terminal.

Mistake 2: Assuming FOB covers insurance to destination

Why it matters: Under FOB the buyer typically assumes risk once goods are on board, meaning the buyer should arrange insurance for the ocean leg. Sellers sometimes assume they remain responsible, causing uncovered losses.

How to avoid it: Clarify who will buy insurance and for what value. Buyers who take FOB shipments should procure marine insurance from the point of loading. If the seller agrees to provide insurance, put that in writing and define the level of cover.

Mistake 3: Using FOB for containerized multimodal shipments without adjustments

Why it matters: FOB was designed for bulk or breakbulk cargo loaded directly onto a ship. For containerized freight, the physical handover can occur at the terminal or container yard before loading, creating ambiguity about when risk transfers.

How to avoid it: For container shipments consider FCA or CPT terms, which are better suited for multimodal transport. If using FOB, include precise wording about when containers pass responsibility (for example, FOB named port when container is on board vessel and confirmed by bill of lading).

Mistake 4: Misunderstanding who handles export/import formalities

Why it matters: Export clearance can be complex. Some buyers assume the seller will handle export licensing or documentation under FOB, while sellers may expect buyers to arrange customs in the destination country. This confusion delays shipments.

How to avoid it: Explicitly assign responsibilities for export documentation, licenses, and customs clearance in the contract. List the documents the seller will provide (commercial invoice, packing list, export declaration) and the documents the buyer needs to present on arrival.

Mistake 5: Not verifying loading and receiving documentation

Why it matters: If goods are damaged or short-shipped, the bill of lading and loading receipts are crucial evidence. Parties who do not verify and collect these documents weaken their ability to claim.

How to avoid it: Sellers should obtain a clean bill of lading and signed loading receipt before the risk transfers. Buyers should request copies of the transport documents promptly and confirm the condition and quantity recorded at loading.

Mistake 6: Overlooking inland transport costs under FOB Origin

Why it matters: In domestic FOB Origin arrangements, buyers often forget to account for the cost of inland hauling from the seller's warehouse to the port. This can increase landed costs unexpectedly.

How to avoid it: When negotiating FOB Origin, include estimates for inland freight and a plan for booking carriers. Factor these costs into your landed cost calculation.

Mistake 7: Neglecting to update contracts for regulatory changes

Why it matters: Trade rules, tariffs, and customs requirements evolve. Using an outdated standard or failing to reflect new compliance obligations can lead to penalties or shipment holds.

How to avoid it: Specify the Incoterms version in contracts and review trade agreements for legal or regulatory changes at least annually. Work with a customs broker or trade advisor if unsure.

Quick checklist to avoid common FOB pitfalls:

1. Include full Incoterms version and exact named place (for example, FOB Port of Loading, Incoterms 2020).
2. Define who buys insurance and the coverage period/value.
3. Clarify responsibilities for export clearance and required documents.
4. Use transport terms suited to containerized cargo if needed, or add precise language for container handover.
5. Obtain and retain clean bills of lading and loading receipts.
6. Compute total landed cost, including inland transport and port handling fees.
7. Review contracts regularly to ensure compliance with current trade rules.

By anticipating these mistakes and including clear, specific contract language, both buyers and sellers can use FOB confidently and avoid disputes. FOB is a useful, well-established term when parties understand its boundaries and document them carefully.