Main Risks for Export Sellers Applying FOB Terms

Risks of Using FOB Terms for Export Sellers

In international trade, FOB Free On Board is a common trade term, indicating that the seller is responsible for loading the goods onto the buyer's designated ship and bearing all costs and risks before the goods are loaded. However, despite its apparent simplicity, FOB comes with a series of potential risks, especially for inexperienced export sellers. These risks may affect the company's profits, the safety of the goods, and its relationship with clients.

Firstly, under FOB terms, ownership of the goods typically transfers to the buyer after they are loaded onto the ship, meaning that the seller must assume all responsibilities during the transportation process from the factory to the port. Various unexpected situations may occur during this period, such as damage or loss of goods. For instance, in a case in 2025, a Chinese exporter shipped goods to an European client using the FOB clause, but the goods were damaged due to improper handling by the carrier en route. Ultimately, the seller had to bear the compensation responsibility. The seller must choose reputable freight forwarders and purchase appropriate transport insurance to mitigate such risks.

Secondly, under FOB conditions, the buyer usually takes charge of arranging transportation and designating the carrier. While this flexibility gives buyers more autonomy, it can also leave sellers in a passive position. If the buyer chooses unreasonable shipping schedules or unsafe routes, it may delay delivery times or increase additional costs. Due to the often unclear specifics about risk division in FOB contracts, disputes between buyers and sellers easily arise. In one dispute, the seller believed the goods had been loaded as agreed, while the buyer claimed not to have received complete documents, causing the transaction to stall. When signing FOB contracts, both parties should discuss transportation details thoroughly and confirm relevant clauses in writing.

Furthermore, FOB terms may also lead to issues in foreign exchange settlement. In some countries, importers commonly delay payment using FOB terms. They might use excuses such as problems occurring during transportation to request price reductions or even refuse to pay. This is undoubtedly a heavy blow to companies that rely on export revenue. Export enterprises need to plan their funds in advance and, if necessary, adopt letters of credit or other guarantee methods to protect their rights.

Additionally, with the increasing complexity of global supply chains, adopting FOB terms may also increase logistics management difficulties. Especially in bulk transactions, sellers need to coordinate multiple stages including warehousing, loading, and customs clearance. Once any stage encounters problems, the entire supply chain could be affected. Therefore, it is recommended that export sellers strengthen internal process control and utilize professional third-party service platforms to optimize operational efficiency.

In conclusion, FOB terms are not a panacea; they bring convenience but also challenges. As export sellers, only by fully recognizing these risks can they better protect their own interests. Whether it is strengthening contract management, improving insurance configurations, or enhancing logistics levels, these are effective measures to reduce FOB risks. In future development, export enterprises should flexibly adjust strategies according to actual circumstances to ensure stable business operations.