This means that goods in transit should be reported as a purchase and as inventory by the buyer. The seller should report a sale and an increase in accounts receivable.
Importers have to rely on their supplier and the freight agent they are using. The communication and information flow might be a hassle and even a day delay can be very costly. Whether the buyer or seller is responsible for shipping charges depends on the specific FOB Destination arrangement.
As with all Incoterms, FOB does not define the point at which ownership of the goods is transferred. The determination of who will be charged the freight costs is usually indicated in the terms of sale. If the Freight On Board is indicated as “FOB delivered,” the seller or shipper will be wholly responsible for all the costs involved in transporting the consignment.
What is the difference between FOB shipping point and FOB destination?
FOB destination is a contraction of the term “Free on Board Destination.” The term means that the buyer takes delivery of goods being shipped to it by a supplier once the goods arrive at the buyer’s receiving dock.
FOB Shipping Point or ‘Free on Board Shipping Point’ or ‘FOR Origin’ is a shipping term indicating that a buyer must pay for the delivery of the goods. This means that the title of the goods passes to the buyer as soon as the shipment leaves the seller’s warehouse (or shipping dock). It also means that the seller should record the sale when the goods leave the warehouse.
When it comes to the cost of shipping, accountants assume follow the shipping terms to determine who is responsible for this expense. Thus, the key elements of all the variations on FOB destination are the physical location during transit at which title changes and who pays for the freight. If a buyer’s transportation department is proactive, it may avoid FOB destination terms, instead favoring FOB shipping point terms so that it can better control the logistics process. The two terms have a specific meaning in commercial law and cannot be altered. The last distinction is important for determining liability or risk of loss for goods lost or damaged in transit from the seller to the buyer.
The buyer pays the cost of marine freight transport, insurance, unloading, and transportation from the arrival port to the final destination. The passing of risks occurs when the goods are loaded on board at the port of shipment. The buyer pays for all costs beyond that point, including unloading. Responsibility for the goods is with the seller until the goods are loaded on board the ship.
Where the FOB terms of sale are indicated as “FOB Origin,” the buyer is responsible for the costs involved in transporting the goods from the seller’s warehouse to the final destination. It is important to note that FOB does not define the ownership of the cargo, only who has the shipping cost responsibility.
When it comes to the FOB shipping point option, the seller assumes the transport costs and fees until the goods reach the port of origin. Once the goods are on the ship, the buyer is financially responsible for all costs associated with transport as well as customs, taxes, and other fees.
The acronym FOB, which stands for “Free On Board” or “Freight On Board,” is a shipping term used in retail to indicate who is responsible for paying transportation charges. It is the location where ownership of the merchandise transfers from seller to buyer. The seller pays the freight, and the buyer takes the title once it’s been shipped. The buyer pays the transportation costs from the warehouse or vendor to the store.
In shipping arrangements classified as FOB Destination, Freight Collect, the buyer is responsible for shipping costs. In FOB Destination, Freight Prepaid & Add arrangements, the seller pays for the shipping costs but then passes on the cost to the buyer.
CIF stands for Cost, Insurance and Freight, whereas FOB stands for Free on Board. Both CIF and FOB are agreements used for international shipping when products are transported between a seller and buyer. The main difference between CIF and FOB is who is responsible for the products in transit. Both cost and freight and free on board are legal terms in international trade. You will see these terms as part of the International Chamber of Commerce (ICC)’s collection of global commerce terms, known as Incoterms.
FOB Shipping Point – Meaning, Example And More
- Free on board is an international trade term under the Incoterms rules published by the International Chamber of Commerce (ICC).
FOB terms of sale establish which party (vendor or retailer) will be liable for the transportation costs, which party is in control of the movement of the goods, and when (date/time) the title passes to the buyer. In most cases, the freight hauler or delivery company (such as FedEx, UPS, Conway) is not involved, but in some instances, the freight hauler is liable as well. A freight hauler is always liable for the damage it may cause in transit, though. Terms indicating that the buyer must pay to get the goods delivered. (The buyer will record freight-in and the seller will not have any delivery expense.) With terms of FOB shipping point the title to the goods usually passes to the buyer at the shipping point.
In international shipping, for example, “FOB [name of originating port]” means that the seller (consignor) is responsible for transportation of the goods to the port of shipment and the cost of loading. The buyer (consignee) pays the costs of ocean freight, insurance, unloading, and transportation from the arrival port to the final destination. The seller passes the risk to the buyer when the goods are loaded at the originating port. means that the seller pays for transportation of the goods to the port of shipment, plus loading costs.
The distinction is important in specifying who is liable for goods lost or damaged during shipping. The primary difference between the two contracts is in the timing of the transfer of the title for the goods. FOB is important for small business accounting because it sets the terms of the shipping agreement. FOB determines whether the buyer or the seller pays the shipping costs and who is responsible if the shipment is damaged, lost or stolen.
FOB on an invoice stands for Free On Board or Freight On Board and refers to the point after which a business shipping products to a buyer is no longer responsible for the items. FOB is always followed by a designation to indicate when the seller’s obligation ends. The supplier is only responsible for providing transportation of the goods sold to a designated main shipping origin point. This point is typically a port, since Incoterms are most commonly used for international trade where goods are transported by sea.
These terms govern shipping responsibilities for international trade. As the number of CIF shipments increase, more problems can occur, since obtaining accurate shipment information becomes more difficult. Overseas suppliers might not help you on a timely manner to handle service issues that might develop in transit. Their responsibility ends on destination port and for any problem, you may have to bear extra demurrage, per diem or unexpected shipping related costs.
For FOB destination, the seller assumes all costs and fees until the goods reach their destination. Upon entry into the port, all fees—including customs, taxes and other fees—are borne by the buyer. FOB shipping point and FOB destination indicate the point at which the title of goods transfers from the seller to the buyer.
Other Shipping Terms
Who is responsible for FOB destination?
FOB Destination. In FOB Shipping Point, both seller and buyer record the delivery once the shipment leaves the seller’s warehouse (or shipping dock). In FOB Destination, the seller and buyer record the sale (and purchase) only after the shipment reaches the buyer’s dock. Another difference is in the division of costs.
The buyer takes responsibility for the transport cost and liability during transportation. “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. FOB is only used in non-containerized sea freight or inland waterway transport.
Free on board is an international trade term under the Incoterms rules published by the International Chamber of Commerce (ICC). to 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.
Freight On Board is an international legal term that requires a seller to deliver goods on board a shipping vessel to the buyer. If the FOB terms of sale indicate that it is “FOB delivered,” then this implies that the shipper will be responsible for all of the carrier’s costs.
Under a cost and freight (CFR) agreement, the seller has a weightier responsibility for arranging and paying for transportation the ordered products. For goods shipped CFR, the shipper is responsible for organizing and paying for the shipping of the products by sea to the destination port, as specified by the receiver.