Free On Board FOB Shipping: Meaning, Incoterms & Pricing

It refers to the point at which the shipping cost is no longer the seller’s responsibility. Should any of the goods get damaged or lost during shipment, it is the buyer, not the seller who should file any claims for reimbursement. F.O.B. Shipping Pointmeans that ownership to the merchandise is transferredto the buyer upon shipment thereof. F.O.B. Shipping Pointmeans Customer takes delivery of Goods being shipped to it by Seller once the Goods are tendered to the carrier. Under the Incoterms 2020 standard published by the International Chamber of Commerce, FOB is only used in sea freight and stands for «Free On Board». The term is always used in conjunction with a port of loading.

“FOB Destination” means that the transfer completes at the buyer’s store and the seller is responsible for all of the freight costs and liability during transport. In North America, the term “FOB” is written in asales agreementto determine when the liability and responsibility for the shipped cargo transfers from the seller to the buyer. When it is indicated as “FOB Origin,” it means that the transfer occurs at the seller’s shipping dock when the goods are safely on board the ship.

Difference between CIF and FOB

The supplier takes full responsibility for the computers and must either reimburse Company XYZ or reship the computers. It may be difficult to record delivery precisely when the goods have arrived at the shipping point.

• FOB is an International Commercial Term , a predefined commercial term meant to reduce confusion between sellers and buyers about ownership transfer points and responsibility for shipping costs.
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• The FOB destination outlines terms indicating that the seller will incur the delivery expense to get the goods to the destination.
• Since the buyer takes ownership at the point of departure from the supplier’s shipping dock, the supplier should record a sale at that point.
• It is an arrangement in a store where the sale of goods or services takes place which includes processing of orders, payment of bills, and check out too.
• Note that while international shipments use “FOB” in the definition provided by the Incoterms standards (always standing for “Free On Board”), this is not always the case for North America shipments.

FOB is always followed by a designation to indicate when the seller’s obligation ends. First, the acronym FOB is a shipping term that stands for ‘free on board’.

FOB Destination in accounting

Only once goods have arrived at the final shipping destination should they be reported as a purchase and as inventory by the buyer. Equally, only once the goods reach the destination will the seller record it as a sale and an increase in accounts receivable. Consequently, the buyer has to state an increase in inventory and cover what does fob shipping point mean the costs of shipping to their facility. Simply put, an incoterm is the standard contract used to define responsibility and liability for the shipment of goods. It plainly lays out how far along into the process the supplier will ensure that your goods are moved and at what point the buyer takes over the shipment process.

In modern domestic shipping, the term is used to describe the time when the seller is no longer responsible for the shipped goods and when the buyer is responsible for paying the transport costs. Ideally, the seller pays the freight charges to a major port or other shipping destination and the buyer pays the transport costs from the warehouse to his store or vendors. In this case, the seller legally owns the products and is responsible until it gets delivered to the buyer’s address.

FOB shipping point – What is FOB shipping point?

Unlike FOB shipping point, FOB destination, indicates that the ownership of goods is not transferred to the buyer until they arrive at their destination. Anna Misiuro is an editor and content creator with Synder who writes about the intricacies of online marketing and e-commerce. Once a newbie herself, she knows the importance of understanding the basic concepts and learning from best practices when you’re just starting in the world of e-commerce. She holds a degree in Linguistics and her interests span public relations, advertising, sales, marketing, psychology and health. This means that the shipment will be delivered to your point of destination without any additional fees as the seller covers taxes and/or import duty. The FOB destination is often used in international sales contracts but can also be used to be more specific about when or where the seller must deliver.

This ensures that you can file a claim in the event of loss or damage of the cargo. The seller must deliver the goods to the port of origin within the agreed upon duration. Your quote will then cover everything after the goods are loaded onto the vessel, all the way to delivery at the address you specified. For instance, if the buyer’s location is New Orleans, the terms will read “FOB New Orleans”. For instance, if goods are designated as “FOB Miami” it means the seller is responsible for the cost of transporting the goods to the port of Miami.

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Sold” after they’ve transferred title and responsibility to the buyer, this is an important distinction. The term free on board simply refers to freight that is being shipped over water instead of land or air.