Carriage Paid To (CPT) Explained: A UK Guide
08/07/2026
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What is CPT? Carriage Paid To (CPT) is an Incoterms 2020 rule that applies to all modes of transport. The seller pays the cost of
What is FOB?
FOB, Free on Board, is an Incoterm where the seller delivers goods on board a named vessel at the port of shipment, clears them for export, and bears all costs and risks up to that point. Once the goods are loaded on the vessel, risk and cost transfer to the buyer. FOB applies to sea and inland waterway transport only. The buyer arranges and pays for the main freight, insurance, and all costs from the port of loading onwards.
If your supplier has quoted you “FOB Shanghai” or “FOB Guangzhou” and you are not sure what you are agreeing to, this article explains it in plain English.
FOB is one of the most widely used Incoterms in global trade, particularly for UK importers buying from Asia. It puts you, the buyer, in control of the main freight. You choose your freight forwarder, you negotiate the freight rate, and you arrange cargo insurance. That is good news if you want control. It also means that from the moment goods are loaded on the ship at the origin port, the risk is entirely yours.
Understanding exactly when risk transfers, and what you need to have in place before goods leave the seller’s country, is the most important thing this article will teach you.
Here is the full sequence of events under an FOB shipment, from start to finish.
1. Contract agreed. The seller and buyer agree on FOB terms and name a specific port of shipment: for example, “FOB Shanghai” or “FOB Ningbo.” That named port is important. It determines where the seller’s obligations end and the buyer’s begin.
2. Seller prepares and packs goods. The seller packs the goods, prepares them for export, and organises haulage from the factory or warehouse to the port of loading. The seller pays all costs up to and including loading the goods on board the vessel.
3. Seller handles export customs clearance. The seller is responsible for clearing the goods through customs in the country of export. The seller pays any export duties, taxes, and fees. The seller needs an export registration or equivalent in their country to do this.
4. Goods are loaded on board the vessel. This is the critical moment. Once the goods are loaded on board the ship at the named port, risk transfers from the seller to the buyer. The seller’s obligations are complete.
5. Buyer arranges and pays for main freight. The buyer has already nominated a freight forwarder and agreed a vessel booking. The buyer’s freight forwarder issues a booking with the shipping line, and the bill of lading is issued. The buyer pays the ocean freight from the port of loading to the UK destination port.
6. Buyer arranges cargo insurance. FOB does not require the seller to arrange insurance. The buyer bears the risk from the moment goods are on board, so the buyer must arrange their own marine cargo insurance for the voyage. This is one of the most commonly overlooked steps.
7. Transit. The goods travel to the UK. The buyer’s freight forwarder manages the shipment. If anything goes wrong in transit, it is the buyer’s risk and the buyer’s insurance claim.
8. Goods arrive in the UK. Import customs clearance is the buyer’s responsibility. The buyer, or their customs broker, files a UK import declaration through the UK Customs Declaration Service (CDS). The buyer pays UK import duty and UK import VAT. The buyer needs a UK EORI (Economic Operators Registration and Identification) number to do this.
9. Goods delivered. The buyer collects or arranges delivery of the goods from the UK port, commonly Felixstowe or Southampton for containerised imports from Asia. The shipment is complete.
| Responsibility | Seller | Buyer |
|---|---|---|
| Packing and origin handling | Yes | No |
| Haulage to port of loading | Yes | No |
| Export customs clearance | Yes | No |
| Export duties and taxes | Yes | No |
| Port handling at origin (loading onto vessel) | Yes | No |
| Loading goods on board the vessel | Yes | No |
| Risk of loss or damage in transit | Ends when goods on board vessel | From the moment goods are on board |
| Main ocean freight | No | Yes |
| Cargo insurance | No obligation | Buyer’s responsibility |
| Unloading at destination port | No | Yes |
| Import customs clearance | No | Yes |
| Import duties and import VAT | No | Yes |
| Inland delivery to buyer’s premises | No | Yes |
The single most important thing to understand about FOB: once the goods are on board the vessel at the named port, everything is the buyer’s problem. The seller has done their job. If the ship is delayed, if goods are damaged at sea, if a container is lost overboard, that is the buyer’s risk.
When a supplier quotes you a price on FOB terms, here is what that price covers, and what it does not.
What the seller’s FOB price includes:
What the buyer must arrange and pay for separately:
A cost example in practice:
A UK homeware retailer orders 500 units of decorative lighting from a supplier in Shenzhen, China, on FOB Yantian terms. The goods are worth £12,000. The FOB price covers everything from the factory to loading at Yantian port. On top of that, the UK retailer arranges and pays: ocean freight to Felixstowe (around £900 for an LCL shipment), marine cargo insurance (around £60–£100), destination port handling (around £150), UK customs clearance via a broker (around £200), UK import duty at the applicable rate, and import VAT at 20% on the full customs value including freight and duty. None of these costs are included in the FOB price.
Under FOB, risk passes from seller to buyer when the goods are loaded on board the vessel at the named port of shipment.
This is a specific and well-defined moment. The goods must be physically on the ship. Not at the port terminal. Not in the container yard. Not cleared through customs. On the vessel.
This matters because it is different from older interpretations of FOB. Before Incoterms 2010, the rules referred to risk passing when goods “crossed the ship’s rail”, an imprecise concept that caused disputes. Incoterms 2010 and 2020 both clarify it as the moment of loading on board the vessel.
What does “risk” mean in plain terms? If the goods are damaged or lost after this point, during the sea voyage, at the destination port, or during inland delivery, it is the buyer’s financial loss. The seller has no further obligation.
Here is a concrete example. A UK electronics distributor buys components from a supplier in Taiwan on FOB Kaohsiung terms. The components are loaded on board a vessel at Kaohsiung port. During the voyage, the vessel encounters severe weather and a container is lost overboard. Risk passed when the goods were loaded on the ship. The UK distributor bears the loss. If they arranged marine cargo insurance, which they should have, they make a claim on their policy. If they did not arrange insurance, the loss falls entirely on them.
This is why arranging insurance before the goods are loaded is so important under FOB terms.
Under FOB, the seller has no obligation to arrange cargo insurance. The buyer bears the risk from the moment goods are on board the vessel, and it is the buyer’s responsibility to arrange appropriate cover.
This is one of the most common FOB mistakes. New shipping coordinators sometimes assume that because the seller handled export logistics, there must be insurance in place. There is not, unless the buyer arranged it.
What insurance should you arrange as a buyer under FOB?
You need a marine cargo insurance policy covering the goods from the port of loading to your final destination. The standard options are:
For most UK importers buying on FOB terms, Institute Cargo Clauses A is the right choice.
How much should you insure for? Standard practice is to insure for 110% of the CIF value of the goods, that is, the goods value plus freight and insurance costs, then add 10% to cover incidental costs.
Practical tip: If you import regularly, consider an open cover policy with a marine cargo insurer. An open cover policy automatically covers every shipment under agreed terms and rates, without a separate policy per consignment. It is more efficient and typically cheaper than ad hoc cover.
Limited exposure. The seller’s risk and cost obligations end when the goods are on board the vessel. Beyond that point, freight costs, insurance, and transit risks are the buyer’s problem. The seller’s financial exposure is clearly bounded.
No freight or insurance to arrange. The seller does not have to negotiate freight rates, contract with shipping lines, or arrange cargo insurance. This reduces the seller’s administrative workload and the need to manage carrier relationships on the buyer’s behalf.
Clear, simple obligations. FOB is one of the oldest and most widely understood Incoterms. Sellers, particularly in manufacturing countries like China, Vietnam, India, and Bangladesh, are very familiar with FOB. There is less risk of misunderstanding about who does what.
Control of export process. The seller handles export customs clearance and manages the goods up to the point of loading. This keeps the seller in control of the export process in their own country, where they understand the regulations and have established relationships with local freight agents.
Competitive pricing. A FOB price is straightforward for buyers to compare between suppliers, because freight and insurance are the buyer’s separate costs. Sellers do not need to embed freight margins in their quote.
Control of the freight. As the buyer under FOB, you choose your freight forwarder, negotiate your own freight rates, and control the shipping schedule. If you import regularly, you can use volume to get better rates than your supplier could. This is a major commercial advantage for UK importers with established supply chains.
Choose your own insurer. You arrange the cargo insurance, so you choose the insurer, the policy level, the currency, and the terms. If you have an existing open cover policy, your FOB imports slot straight into it. You are not dependent on the seller’s insurer or the quality of their cover.
Visibility and control. Your freight forwarder manages the shipment from loading onwards. You get the shipping documents, track the vessel, and know where your goods are at all times.
Cost transparency. The FOB price covers origin costs only. Freight and insurance are separate, visible costs you negotiate directly. You know exactly what you are paying for each element.
FOB is the standard for UK-Asia trade. FOB is the dominant Incoterm for UK importers sourcing from China and the wider Asia-Pacific region. Most UK freight forwarders and customs brokers are highly experienced handling FOB shipments into Felixstowe, Southampton, and other UK ports.
No control after loading. Once goods are on board the vessel, the seller has no influence over the shipment. If the buyer’s freight forwarder mismanages the shipment, or if the buyer fails to clear goods at the destination port, the seller has no practical way to intervene, yet may still be drawn into disputes about the condition of goods on arrival.
Risk of disputes over the loading moment. For containerised cargo, there is an ambiguity in FOB. The seller loads a container, the terminal handles it, a crane lifts it onto the ship, at which exact moment is it “on board”? This is why the ICC recommends FCA for containerised shipments. For breakbulk and bulk cargo, the loading moment is unambiguous.
Origin port costs can be unpredictable. The seller pays all origin costs including port handling and loading. Terminal handling charges (THCs) can vary and may include surcharges the seller did not anticipate when quoting.
The seller is the exporter of record. As the party handling export customs clearance, the seller bears the compliance risk for the export declaration in their own country.
Cash flow. The seller incurs origin costs: packing, haulage, port fees, export clearance, before receiving payment. If payment terms are 30 or 60 days from bill of lading, the seller has funded these costs upfront.
You must arrange insurance yourself, and if you forget, you are unprotected. This is the single biggest risk for buyers under FOB. Risk transfers when goods are on board the vessel. If goods are damaged or lost at sea and you have not arranged insurance, you bear the entire loss. This happens more often than it should.
The container problem. FOB technically requires risk to transfer “on board the vessel.” For containerised cargo, the seller hands the container to a terminal operator before the vessel is even in port. If the container is damaged in the terminal, before loading, FOB creates ambiguity about who bears that risk. FCA to the named terminal eliminates this issue. Most traders accept this as a known limitation and use FOB anyway, but understand the gap.
You bear all freight market risk. You agreed an FOB price with the supplier, but you still need to book the freight. Ocean freight rates can be volatile. If rates spike between contract agreement and vessel booking, that extra cost falls on you.
Import costs are entirely your responsibility. UK import duty, import VAT, customs clearance, and port handling at destination are all the buyer’s costs under FOB. If you have not correctly calculated the duty rate before agreeing the deal, you may receive an unexpected bill. Always check the commodity code and applicable rate before signing.
You need a UK EORI number. Without one, you cannot legally import commercial goods into the UK. If you are new to importing on FOB terms, HMRC registration typically takes 3–5 working days, plan ahead.
Goods over £135 attract import VAT. Any commercial consignment with a customs value above the £135 de minimis threshold is subject to UK import VAT at 20% at the border. Use postponed VAT accounting to manage the cash flow impact.
FOB works well in the following situations.
When you want to control your own freight. If you have a preferred freight forwarder, competitive freight rates, and an established relationship with a shipping line, FOB lets you use them rather than the seller’s arrangements.
When you import regularly from Asia. UK importers buying from China, Vietnam, India, or Bangladesh typically buy on FOB terms. The infrastructure, freight forwarders, customs brokers, open cover insurance policies, is set up for it.
When you want cost transparency. FOB separates origin costs from freight and insurance. You can negotiate each element separately and see exactly what you are paying.
When your supplier is experienced with FOB. Manufacturers in major export markets, particularly China and Southeast Asia, quote FOB as the default. Their export teams know the process well.
For breakbulk, bulk, or non-containerised sea freight. FOB is correctly applied to cargo loaded directly into the hold of a vessel, bulk commodities, breakbulk machinery, project cargo. For these, the “on board the vessel” risk transfer point is unambiguous and appropriate.
Avoid FOB for containerised cargo if you want to be technically correct. FOB’s risk transfer point creates a gap for containers, because containers are handed to terminal operators well before loading. FCA (Free Carrier) to the named terminal is the ICC’s recommended alternative. In practice, FOB is used for containerised cargo widely, but FCA is technically the right choice.
Avoid FOB if you do not have marine cargo insurance in place. Under FOB, you bear the risk from the moment goods are loaded at the origin port. If you cannot arrange insurance before the goods ship, negotiate for CIF or CIP terms, where the seller arranges insurance, rather than shipping uninsured.
Avoid FOB for air freight, road freight, or rail freight. FOB is a sea-only Incoterm. If goods are moving by air, road, or any mode other than sea, FOB does not apply. Use FCA instead.
Avoid FOB if you are a first-time importer without a freight forwarder. FOB requires the buyer to arrange freight, insurance, and import customs clearance independently. If you do not have a freight forwarder lined up, it is safer to ask the seller to quote on CIF or CIP terms while you get your infrastructure in place.
Avoid FOB when the letter of credit or financing structure requires a different Incoterm. Some banks and trade finance providers specify particular Incoterms. Check the requirements before agreeing to FOB if you are using documentary credit.
Mistake 1: Not arranging cargo insurance.
This is the most serious FOB mistake. Risk transfers at the origin port. If goods are damaged or lost at sea and you have not arranged insurance, you have no cover and no claim. Arrange marine cargo insurance before goods are loaded. If you import regularly, set up an open cover policy so every shipment is automatically covered.
Mistake 2: Using FOB for containerised cargo and not understanding the risk gap.
For containerised cargo, the seller hands the full container to the terminal before the vessel arrives. If the container is damaged in the terminal, before loading. FOB creates ambiguity about who bears that risk. FCA to the named terminal avoids this issue. Most experienced traders accept this limitation and use FOB anyway, but you should understand the gap.
Mistake 3: Confusing FOB with “seller pays everything to my door.”
FOB covers origin costs only. Freight, insurance, destination port handling, import duties, VAT, and delivery to your premises are all the buyer’s costs. If you have budgeted on the FOB price alone, you have majorly underestimated your total landed cost.
Mistake 4: Using FOB for non-sea shipments.
FOB is sea and inland waterway only. If your goods are shipping by air or road, FOB does not apply. Use FCA instead. This is a common error on contracts where goods sometimes move by sea and sometimes by air, you cannot use FOB as a catch-all.
Mistake 5: Not accounting for UK import duty and VAT.
Import duty and VAT are not in the FOB price. Failure to calculate the commodity code duty rate before agreeing the deal can turn a profitable buy into a loss. Check rates before signing. HMRC publishes customs valuation guidance including how Incoterms affect customs value at gov.uk/guidance/customs-valuation/incoterms.
Mistake 6: Importing without a UK EORI number.
As the UK importer of record under FOB, you must have a UK EORI number to clear goods through UK customs and file declarations through CDS. Without one, your goods will be held at port. Register through HMRC well before your first shipment.
Mistake 7: Naming only the country, not the port.
“FOB China” is not a valid FOB contract. The named place must be a specific port, “FOB Shanghai (Yangshan)” or “FOB Ningbo.” The named port determines where the seller’s obligations end. Without a specific port, there is room for dispute.
CFR stands for Cost and Freight. Like FOB, it is a sea-only Incoterm. The key difference is who pays the main freight.
| Key Difference | FOB | CFR |
|---|---|---|
| Transport modes | Sea and inland waterway only | Sea and inland waterway only |
| Risk transfer point | When goods loaded on board vessel at origin port | When goods loaded on board vessel at origin port |
| Who pays main ocean freight | Buyer | Seller |
| Who arranges cargo insurance | Buyer (no obligation on seller) | Buyer (no obligation on seller) |
| Named place | Port of shipment | Port of destination |
Under both FOB and CFR, risk passes at the same moment, when goods are loaded on board the vessel at the origin port. The difference is who pays for the freight from origin to destination. Under FOB, the buyer pays. Under CFR, the seller pays.
Importantly, neither FOB nor CFR requires the seller to arrange cargo insurance. Under both terms, the buyer bears the risk from the moment of loading and must arrange their own insurance.
When to choose FOB over CFR: Choose FOB when you want to control your own freight, you have a preferred forwarder, competitive rates, or the ability to consolidate multiple shipments. Choose CFR when you want the seller to arrange and pay the freight, but you are comfortable arranging your own insurance and bearing the transit risk from the port of loading.
If you want the seller to pay freight and arrange insurance, look at CIF (Cost Insurance Freight), the sea-only Incoterm that includes seller-arranged insurance, or CIP for all-mode shipments with comprehensive Clauses A cover.
FCA stands for Free Carrier. It is the all-mode equivalent of FOB and is the Incoterm the ICC recommends for containerised shipments.
| Key Difference | FOB | FCA |
|---|---|---|
| Transport modes | Sea and inland waterway only | All modes (sea, air, road, rail, multimodal) |
| Risk transfer point | When goods loaded on board vessel at origin port | When goods handed to buyer’s nominated carrier at named place |
| Suitable for containers | Technically incorrect — risk gap at terminal | Correct — risk transfers at terminal handover |
| Export customs clearance | Seller | Seller |
| Named place | Port of shipment | Any named place — premises, terminal, port |
The practical difference for containerised cargo is major. Under FCA, if the named place is the container terminal, risk transfers when the seller hands the container to the terminal. This aligns with how containers actually move. Under FOB, risk is supposed to transfer “on board the vessel,” but the seller has already handed the container to the terminal long before loading.
When to choose FOB over FCA: In practice, many buyers and sellers continue to use FOB for containerised cargo because it is familiar, widely understood, and most banks accept it on letters of credit. If you are in a well-established FOB relationship with a supplier, there is often no practical reason to change. If you are starting a new contract and want technically correct terms for containerised cargo, use FCA to the named terminal.
For non-containerised sea freight, bulk, breakbulk, project cargo. FOB is correct and appropriate.
FOB applies to sea and inland waterway transport only. It is not suitable for air freight, road freight, or rail freight.
Sea freight (FCL and LCL). FOB is appropriate for full container loads, less than container loads, breakbulk, and bulk cargo. It is the dominant Incoterm for UK importers shipping from Asia by sea. For containerised FCL shipments, FOB is widely used in practice, but FCA is technically more accurate because of the risk gap at the container terminal.
Air freight. Do not use FOB for air shipments. If your supplier quotes “FOB” for air freight, the Incoterm is technically inapplicable. FCA is the correct Incoterm for air freight, risk passes when goods are handed to the airline at the airport of departure.
Road freight. For imports from Europe via Dover, FOB does not apply. Use FCA or DAP (Delivered at Place) depending on who controls the freight.
Multimodal shipments. Where goods travel by more than one mode: for example, road then sea. FOB is not suitable. The “on board the vessel” risk transfer does not map cleanly onto a multimodal journey. Use FCA.
The container note. The ICC has been explicit since Incoterms 2010 that FOB is not the correct Incoterm for containerised cargo. FCA is recommended. But in global trade practice, particularly on UK-Asia routes. FOB remains the dominant term for container shipments. Know the limitation and manage it with appropriate insurance.
No major changes. FOB in Incoterms 2020 is substantively the same as FOB in Incoterms 2010. The core rules, sea-only transport, risk on board the vessel, seller handles export clearance, buyer pays freight and insurance, are unchanged.
The ICC did take the opportunity to add clarity on a few related points:
FCA on-board bill of lading. A change was made to FCA (not FOB directly) allowing the buyer under FCA to instruct the carrier to issue an on-board bill of lading to the seller, useful when a letter of credit requires an on-board bill. This reflects the ICC’s continued effort to make FCA more usable as an alternative to FOB for containerised cargo.
Continued recommendation to use FCA for containers. The 2020 revision reinforced the ICC’s position that FCA, not FOB, is the correct choice for containerised shipments. The ICC’s official guidance states that where goods are handed to a carrier at a terminal before being placed on board a vessel, FOB does not accurately reflect the moment of risk transfer.
No change to insurance. FOB has never required the seller to arrange insurance, and this remains the case under 2020. The buyer must arrange their own cover.
No change to the risk transfer point. Risk still passes when goods are loaded on board the named vessel at the named port. The 2010 revision removed the old “ship’s rail” language; the 2020 revision confirmed the “on board” wording remains correct.
If your contracts reference “Incoterms 2010” and you are using FOB, there is no material difference in how the term operates under 2020. However, it is good practice to update contracts to specify “Incoterms 2020” to reflect the current version of the rules.
FOB is the most common Incoterm used by UK importers sourcing from Asia, and it has specific UK implications every shipping coordinator should understand.
You are the importer of record. Under FOB, you, the UK buyer, are responsible for UK import customs clearance. You need a UK EORI number. Without one, you cannot import goods commercially into the UK. Register through HMRC, it typically takes 3–5 working days.
Import declarations go through CDS. The UK Customs Declaration Service (CDS) replaced the old CHIEF system in November 2023. All UK import declarations must now be filed through CDS. Your customs broker should be fully on CDS.
UK import duty applies. The rate depends on the commodity code of your goods. Under FOB, HMRC calculates the customs value for duty purposes on the CIF value, that is, the FOB price plus the cost of freight and insurance to the UK port of entry. This means your duty is assessed on a slightly higher value than the FOB price alone. HMRC’s guidance on how Incoterms affect customs valuation is at gov.uk/guidance/customs-valuation/incoterms.
UK import VAT applies. Goods with a customs value over the £135 de minimis threshold are subject to UK import VAT at 20% at the border. Most commercial FOB shipments from Asia will exceed £135. Use postponed VAT accounting to defer this to your VAT return rather than paying at the border.
Felixstowe and Southampton. The majority of UK container imports from Asia arrive through Felixstowe, which handles around 40% of UK container trade. Southampton is a major alternative for some trade lanes and carriers. Make sure your customs broker covers the port where your goods are arriving.
Post-Brexit trade with the EU. If you are buying on FOB terms from an EU supplier: for example, a manufacturer in Germany or the Netherlands, post-Brexit customs formalities apply in both directions. The EU seller handles EU export clearance; you handle UK import clearance, with a UK EORI number and a CDS declaration.
You handle UK export customs clearance. As the seller under FOB, you are responsible for export clearance in the UK. You need a UK EORI number and must file an export declaration through HMRC’s systems, typically handled by your freight forwarder or customs agent.
Your cost and risk obligations end at the vessel. Once the goods are on board the buyer’s nominated vessel at the named UK port, you are done. The buyer’s freight forwarder takes over.
Coordinate carefully with the buyer’s forwarder. The buyer nominates the vessel and the freight forwarder. You need to receive booking confirmation and delivery instructions from the buyer’s forwarder in time to move goods to the port and load them. Poor communication here causes missed vessels and additional costs.
Here is a worked example to make FOB concrete.
The scenario: A UK outdoor clothing retailer. Moorside Outdoor, places an order for 800 waterproof jackets from a manufacturer in Hangzhou, China. The contract is agreed on FOB Ningbo, Incoterms 2020.
Goods value: £24,000
What the seller does:
The Hangzhou manufacturer packs the jackets, loads them into a 20-foot container, and arranges a truck to collect the container from the factory and deliver it to Ningbo port. The manufacturer handles Chinese export customs clearance and pays any Chinese export fees. The container is delivered to the terminal at Ningbo.
A crane loads the container on board the vessel. At that moment, goods on board the vessel at Ningbo, risk transfers to Moorside Outdoor.
What Moorside Outdoor arranged before loading:
Moorside Outdoor’s UK freight forwarder nominated a vessel booking on a service from Ningbo to Felixstowe. Ocean freight was agreed at £1,100 for the 20-foot container. Moorside also arranged marine cargo insurance through their open cover policy, insured value £26,400 (110% of £24,000), at Institute Cargo Clauses A, costing around £80.
Arrival in the UK:
The vessel arrives at Felixstowe 28 days after loading. Moorside Outdoor’s customs broker files the UK import declaration through CDS. The commodity code for waterproof jackets attracts UK import duty at 12%. Duty on £24,000 = £2,880. UK import VAT is calculated at 20% on the full customs value (goods + freight + insurance): around £5,200. Moorside Outdoor uses postponed VAT accounting, so the VAT is accounted for on their next VAT return.
Destination port handling at Felixstowe adds around £200. Moorside Outdoor’s haulier collects the container and delivers it to their distribution centre in Leeds for £350.
Total landed cost summary:
| Cost Element | Amount |
|---|---|
| FOB price (goods) | £24,000 |
| Ocean freight (Ningbo to Felixstowe) | £1,100 |
| Marine cargo insurance (Clauses A) | £80 |
| UK import duty (12%) | £2,880 |
| Destination port handling | £200 |
| Customs clearance (broker fee) | £220 |
| Haulage to Leeds | £350 |
| Total landed cost | around £28,830 |
The key lesson: Moorside Outdoor knew exactly what they were paying at each stage because they controlled the freight and insurance. Buying on FOB gave them the rate visibility and control to calculate a reliable total landed cost, around £36.04 per jacket, well within their margin.
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 goods on board the buyer’s nominated vessel at a named port of shipment, clears the goods for export, and bears all costs and risks up to that point. Once goods are on board, risk and cost pass to the buyer.
Risk passes when the goods are loaded on board the vessel at the named port of shipment. Not at the factory, not at the terminal, not when the vessel leaves port, at the moment of loading on the ship. From that point, the buyer bears the risk of loss or damage.
No. Under FOB, the seller has no obligation to arrange cargo insurance. The buyer bears the risk from the moment goods are on board the vessel and must arrange their own marine cargo insurance. If you are buying on FOB terms, always arrange insurance before the goods are loaded.
Technically, no. FCA (Free Carrier) is the ICC’s recommended Incoterm for containerised cargo. Under FOB, risk is supposed to transfer “on board the vessel,” but for containers, the seller hands the box to a terminal operator long before loading. FCA to the named terminal avoids this ambiguity. In practice, FOB is used for containerised cargo across the industry, but the risk gap at the terminal is a real limitation that should be managed with adequate insurance.
Under FOB, the buyer arranges and pays for ocean freight and cargo insurance, and bears the risk from the port of loading. Under CIF (Cost, Insurance and Freight), the seller arranges and pays for ocean freight and a minimum level of cargo insurance (Institute Cargo Clauses C), but risk still transfers at the port of loading when goods are on board the vessel. Both are sea-only Incoterms. FOB gives the buyer control of freight and insurance; CIF has the seller arrange and pay for both.
Yes. As the UK importer of record under FOB, you need a UK EORI number to clear goods through UK customs and file import declarations through the Customs Declaration Service (CDS). Without an EORI number, you cannot legally import commercial goods into the UK. Apply through HMRC, it typically takes 3–5 working days.
HMRC uses the CIF customs value of imported goods for duty assessment, that is, the FOB price plus the cost of freight and insurance to the UK port of entry. This means your duty is calculated on a slightly higher value than the FOB price alone. HMRC’s full guidance on customs valuation and Incoterms is at gov.uk/guidance/customs-valuation/incoterms.
FOB is a sea-only Incoterm where risk passes when goods are on board the vessel. FCA is an all-mode Incoterm where risk passes when goods are handed to the buyer’s nominated carrier at a named place. FCA is the ICC’s recommended term for containerised shipments because the risk transfer point aligns correctly with how containers move. FOB is appropriate for breakbulk, bulk, and non-containerised sea freight.
Article: fob-incoterm | ShippingEducation.co.uk | Published June 2026 | Incoterms 2020
Internal links: FCA Incoterm | CFR Incoterm | CIF Incoterm | Incoterms Explained
External: HMRC Customs Valuation. Incoterms
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