When it comes to international shipping, business owners often find themselves asking: "Can airfreight be FOB?" This common question stems from the widespread use of FOB (Free On Board) terms in ocean shipping, leaving many to wonder if the same concept applies to air cargo.
The short answer is yes, airfreight can technically be FOB, but it's often not the most optimal choice for air shipments. Let's explore what this means for your business and why you might want to consider alternatives when shipping by air.
What Exactly is FOB?
FOB, or Free On Board, is a shipping term used in international trade that specifies when the risk and responsibility for goods transfers from the seller to the buyer.
There are two main variations:
FOB Origin (or FOB Shipping Point): The seller's responsibility ends when the goods are loaded onto the transportation vessel at the shipping port. The buyer assumes all risks and responsibilities from that point forward.
FOB Destination: The seller retains the risk of loss and responsibility for shipping costs until the goods reach the buyer's specified location.
In traditional maritime terms, FOB means the seller must load the goods onto the ship specified by the buyer at the named port of shipment. The risk transfers to the buyer once the goods pass the ship's rail, and loading costs are typically borne by the seller.
The Airfreight Adaptation: FOB Airport
For air shipments, there's a specific variation called "FOB Airport," which operates on a similar principle to maritime FOB but is adapted for air cargo. Under FOB Airport terms, the seller fulfills their obligation when they deliver the goods to the air carrier at the departure airport. At this point, the risk of loss or damage transfers from the seller to the buyer.
Think of it this way: With FOB Airport, your responsibility as a seller ends once the goods are handed over to the airline at the departure airport. From that point forward, the buyer assumes all risks and costs associated with the shipment.
Why FOB Might Not Be Ideal for Airfreight
While you can technically use FOB for air shipments, it often creates complications because:
- FOB was originally designed for sea transport with clear "on board" moments, while air cargo follows different handling processes.
- Physical handover occurs differently - for containerized air freight, the transfer often happens at the terminal or cargo yard before loading, creating ambiguity about when risk actually transfers.
- Multimodal shipments (which combine different transport methods) are common in air cargo, and FOB doesn't handle these complexities well.
Better Alternatives to FOB for Airfreight
For air cargo, these Incoterms often work better than FOB:
FCA (Free Carrier)
FCA is generally recommended for containerized or multimodal shipments, including air cargo. Under FCA terms, the seller delivers the goods to a named carrier at a specified place. This could be at the seller's premises, a terminal, or another designated point. The risk transfers at that specific point of delivery, making it much clearer for air shipments where the exact "on board" moment is less defined.
CPT (Carriage Paid To) and CIP (Carriage and Insurance Paid To)
These terms are better suited for multimodal transport, including airfreight. With CPT, the seller pays for carriage to the named destination, but risk transfers when the goods are delivered to the first carrier. CIP is similar but includes minimum insurance coverage.
Common FOB Mistakes to Avoid with Airfreight
If you do choose to use FOB for air shipments, watch out for these common pitfalls:
- Failing to specify the exact terms: Simply writing "FOB" without declaring the Incoterms version or exact location opens the door to disagreements. Always use the full clause, such as "FOB Shanghai Airport Incoterms 2020."
- Assuming FOB covers insurance to destination: Under FOB, the buyer typically assumes risk once goods are on board, meaning the buyer should arrange insurance. Don't assume coverage extends to the final destination without explicit agreement.
- Misunderstanding who handles export/import formalities: Clearly specify who handles export documentation, licenses, and customs clearance in your contract.
- Using outdated contract terms: Trade rules evolve, so ensure your contracts reflect current requirements.
Making the Right Choice for Your Business
When deciding whether to use FOB for your air shipments, consider:
- Your risk tolerance: How much risk are you willing to assume as a seller or buyer?
- Logistics expertise: Do you have the knowledge to manage complex shipping arrangements?
- Cost predictability: Are you looking for predictable shipping costs?
- Relationship with your partner: How much do you trust your trading partner to handle logistics properly?
For most air shipments, FCA, CPT, or CIP terms will serve you better than trying to force FOB into a context it wasn't designed for.
The Bottom Line
While you can technically use FOB for airfreight (through the FOB Airport variation), it's often not the most practical choice. The modern Incoterms like FCA, CPT, and CIP are specifically designed to handle the complexities of air cargo and multimodal transport more effectively.
When negotiating your next air shipment, consider whether FOB truly serves your needs or if alternative terms might provide clearer risk allocation and cost responsibility. Your bottom line will thank you for the clarity.
