What's FOB Shipping Point?

What's FOB Shipping Point?

Jul 21, 2020 Bookkeeping 101 by ann

fob shipping point

Responsibility for the goods is with the seller until the goods are loaded on board the ship. Another important difference between FOB shipping point and FOB destination is that of the party responsible for the shipping costs of the products. In a FOB shipping point contract, the seller transfers any title of ownership to the buyer upon the product leaving the seller’s location.

In contrast, the FOB (free on board) destination point refers to the sale of goods that would take place once a product reaches a buyer’s destination. This differs from the FOB shipping point in that the seller may be responsible for the shipping costs and any liabilities regarding the product for as long as those products remain in transport. The FOB, or free on board shipping point refers to the sale of goods that takes place when the seller or provider of those goods ships out a product. Essentially, the sale is finalized as soon as the product is taken by the shipping carrier, before being transported to the buyer. Ultimately, this means that the buyer is responsible for shipping costs as well as any additional liabilities of the goods being transported.

FOB Shipping Point or FOB Destination – Which is Better?

The following differences can be noted when a seller enters into a contract with a buyer. For instance, when the sale of goods and the related receivable occurs, there is a difference in the way a buyer and seller account for the inventory. Similarly, the assumed costs and liabilities can also present differences between the party responsible for shipping expenses as well as the responsibility of the products during transport.

“FOB origin,” which is a synonym for “FOB shipping point” indicates that the sale completes at the seller’s shipping dock. As a result, the buyer must cater for any liability incurred during transport and for freight costs.

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.

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.

Cost, Insurance, and Freight (CIF) and Free on Board (FOB) are international shipping agreements used in the transportation of goods between a buyer and a seller. They are among the most common of the 12 international commerce terms (Incoterms) established by the International Chamber of Commerce (ICC) in 1936. One more difference between the FOB shipping point and FOB destination lies in the costs of transport.

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. Depending on specific usage, it may stand for Free On Board or Freight On Board.

When a supplier, or seller, of a product commits to a sale, they enter into a contract with a buyer. Depending on the terms of the sale contract, either the seller or the buyer may be responsible for costs of shipping the product. This sale term can be referred to as FOB shipment, or free on board shipment. 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.

means that the seller pays for transportation of the goods to the port of shipment, plus loading costs. 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.

fob shipping point

  • The difference between FOB and CIF shipping is the point at which responsibility for the shipment is passed between the seller and the buyer.

FOB

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.

With a FOB shipping point sale, the buyer assumes all responsibility and legal liability for the goods purchased. This means that the buyer is responsible for recording the sale at the point of transport within their accounts payable, meaning that an increase in their inventory has taken place. Conversely, the seller records the point of sale at the time of shipment and records the sale within their accounts receivable, as an added payment, whether the payment has been made or is waiting to be made. When accounting for shipping costs, accountants assume follow the shipping terms to determine who is responsible for this expense. If the sale occurred at the shipping point (FOB Shipping Point), then the buyer is expected to pay the cost of transporting the goods to their location and will therefore record this cost as Freight-In.

Whether the buyer or seller is responsible for shipping charges depends on the specific FOB Destination arrangement. 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. 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.

fob shipping point

In a FOB destination sale contract, the buyer may not receive title of ownership until the product reaches the buyer’s location. The seller is therefore considered to have full ownership at the point of shipment and during the transport of the products. There are a few key differences between the FOB shipping point and the FOB destination of goods.

In a FOB shipping point contract, the buyer is responsible for additional costs of shipment, as they are legally considered to be in full ownership of the product as it is picked up by the carrier. Conversely, with a FOB destination, the seller assumes full shipping costs as well as any additional insurance or liability costs throughout transport of the product, up until it reaches the buyer’s destination. 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.

FOB Shipping Point vs. FOB Destination

The main difference between CIF and FOB is who is responsible for the products in transit. 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.

What is the difference between FOB shipping point and FOB destination?

The term FOB shipping point is a contraction of the term “Free on Board Shipping Point.” The term means that the buyer takes delivery of goods being shipped to it by a supplier once the goods leave the supplier’s shipping dock.

FOB specifies which party (buyer or seller) pays for which shipment and loading costs, and/or where responsibility for the goods is transferred. The last distinction is important for determining liability for goods lost or damaged in transit from the seller to the buyer. FOB is only used in non-containerized sea freight or inland waterway transport. As with all Incoterms, FOB does not define the point at which ownership of the goods is transferred.

The difference between FOB and CIF shipping is the point at which responsibility for the shipment is passed between the seller and the buyer. When shipping on FOB (Free On Board) shipping terms, the supplier pays all the costs in the country of origin and the buyer takes responsibility once the goods are on board the ship. CIF (Cost, Insurance, Freight) shipping terms means that the supplier gets the goods to the buyer’s destination country with insurance included before the responsibility is transferred to the buyer. Free on board is an international trade term under the Incoterms rules published by the International Chamber of Commerce (ICC). 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.

byann