Buyers are responsible for logging the transaction, changing their accounts payable and updating their inventory. To successfully ship goods under either FOB term, both parties should be clear on the responsibilities and risks involved. This includes understanding any contracts, insurance policies, and documentation requirements. It is also important to ensure proper packaging and labeling of the goods, as well as choosing a reputable and reliable carrier. One common misconception about FOB terms is that they determine who is responsible for any damages that occur during shipping.
With FOB Shipping Point, the buyer is responsible for the shipping costs and any damages that may occur during transport. With FOB Destination, the seller is responsible for the shipping costs and any damages that may occur during transport. This can impact the overall cost of the product and should be taken into consideration when making purchasing decisions. FOB is an International Commercial Term (Incoterm), a predefined commercial term meant to reduce confusion between sellers and buyers about ownership transfer points and responsibility for shipping costs.
Buyer’s Inventory Cost: Who Pays Shipping Costs?
This means that the seller is responsible for any damages or losses that occur during transit. FOB Shipping Point, on the other hand, places the responsibility on the buyer once the goods are loaded onto the carrier. It is important for buyers and sellers to understand the terms of their agreement and which FOB term is being used to avoid any confusion or disputes. FOB shipping point is a shipping term determining when the buyer takes ownership and responsibility for goods in transit. Understanding who is responsible for shipping costs and potential risks and liabilities is essential when using FOB shipping points. Proper documentation and communication are also crucial to ensure a smooth shipping process.
If the seller of goods quotes a price that is FOB shipping point, the sale takes place when the seller puts the goods on a common carrier at the seller’s dock. Therefore, when the goods are being transported to the buyer, they are owned by the buyer and the buyer is responsible for the shipping costs. One common misconception is that FOB Destination is always more expensive than FOB Shipping Point. However, the actual cost depends on a variety of factors, including the distance between the buyer and seller, the cost of transportation, and the value of the goods being shipped. Additionally, some buyers may assume that FOB Shipping Point is always the better option because it provides more control over the transportation process, but it may not be feasible for every situation. However, FOB Destination can also be more expensive for the seller, as they are responsible for all transportation costs and any potential damages or losses during transit.
Other Incoterms
If your items are expensive, unique, or in a category where obtaining insurance is difficult, negotiating for FOB destination may be a better option. CIP stands for “carriage and insurance paid to” says that the seller pays for delivery and insurance of goods to a carrier or nominated location. FOB, or “free on board,” is a widely recognized shipping rule created by the International Chamber of Commerce (ICC). It defines the point when a buyer or seller becomes liable for goods transported by sea.
- With FOB Destination, the seller is responsible for the shipping costs and any damages that may occur during transport.
- To further clarify, let’s assume that Claire’s Comb Company in the US purchases a container of The Wonder Comb from a supplier based in China.
- Unlike “Freight Prepaid and Added,” where the buyer pays the sending cost on their invoice, in this arrangement, the buyer doesn’t pay until they physically receive the items at the final destination.
- Cost, Insurance, Freight (CIF) puts the liability of payment for – you guessed it – cost, insurance, and freight on the supplier.
- Choosing FOB destination as the shipping arrangement is strategic and depends on specific scenarios where this Incoterm aligns with your objectives.
The FOB shipping point (or the FOB origin) is an important term to understand in a contract, as it can significantly affect how much you pay for packing materials and insurance. We’ve reached the part of our journey where we must look for potential risks and liabilities. While FOB shipping points can provide some great benefits, it’s also important to be aware of the potential dangers lurking in the deep waters of the shipping process. Now that we understand the difference between a FOB shipping point and a FOB warehouse destination, let’s explore how a FOB shipping point works in practice.
Control and Flexibility for Sellers
FreightWaves Ratings reference a list of approved sources for use of research to support editorial research and drafting. To find out more about other import and export terminology, check out FreightWaves Ratings so that you can stay as informed as possible. To calculate your FOB price, you’ll need to know your ex-factory price plus other costs. As vague as that sounds, it is rather simple, but the other costs can quickly add up.
- Unlike FOB shipping, the supplier is not required to ensure the safe movement from port to ship.
- Usually, the buyer takes ownership when the goods are loaded onto the shipping carrier contracted by the buyer.
- An “FOB San Francisco” shipment means you’re responsible for shipping them from San Francisco to Dallas and own the goods when the shipping company picks them up.
- When products are received at the location the customer specifies, ownership passes from the seller to the buyer.
- Depending on the agreement with your supplier, your goods may be considered delivered at any point between the port of destination and your final delivery address.
Once the delivery is unloaded in the receiving country, responsibility is transferred to you. If anything happens to the goods on any leg of the journey to the buyer, the supplier assumes all responsibility. Of the 11 different fob shipping point incoterms that are currently used in international freight, Free on Board (FOB) is the one that you will encounter most frequently. What is FOB shipping, how does it differ from other incoterms, and when should you use it?
In this case, the seller is responsible for loading the goods onto the carrier and arranging for transportation. The seller also assumes responsibility for the goods during transit, including liability for any damage, loss, or delay. If the goods are damaged or lost in transit, the seller must file a claim with the carrier or their insurance company. The buyer receives ownership of the goods once they arrive at their destination and may inspect them before accepting them.
