FOB shipping Wikipedia

The type of FOB to be used is typically designated in a customer’s purchase order, and is also stated on the supplier’s invoice to the customer. The key is to keep your shipping documents clear, maintain open lines of communication, and consult experts when necessary. Armed with this knowledge, you’re well on your way to mastering FOB and steering your supply chain more effectively.

• So, the buyer pays for the goods before they are received and usually bears the cost of shipping and liabilities of transportations, including loss, damage, or theft.
• FOB terms are typically included in shipping orders and contracts, detailing the time and place of delivery, payment terms, and which party handles freight costs and insurance.
• The customer should record an increase in its inventory at the same point (since the customer is undertaking the risks and rewards of ownership, which occurs at the point of arrival at its shipping dock).
• With the FOB shipping point option, the seller assumes the transport costs and fees until the goods reach the port of origin.
• For FOB Origin, after the goods are placed with a carrier for transport, the company records an increase in its inventory and the seller records the sale.
• The seller’s only responsibility is to bring the package to the loading dock or delivery truck.
• It says that sellers must deliver goods to a vessel for loading, with the buyer taking responsibility for bringing them onboard.

A common mistake is using FOB Incoterms® for containerised cargo

The phrase passing the ship’s rail is no longer in use, having been dropped from the FOB Incoterm in the 2010 revision. When the ship’s rail serves no practical purpose, such as in the case of roll-on/roll-off or container traffic, the FCA term is more appropriate to use. There are situations where you may be responsible for covering costs before your goods are on board. Ask a question about your financial situation providing as much detail as possible. Our writing and editorial staff are a team of experts holding advanced financial designations and have written for most major financial media publications.

Examples of FOB Shipping Point and FOB Destination

If your items are expensive, unique, or in a category where obtaining insurance is difficult, negotiating for FOB destination may be a better option. When you agree to receive items under FOB shipping point terms, it’s essential to be aware of your liabilities. Shopify Markets helps you sell to multiple countries and scale your business internationally—all from a single Shopify store.

What Does FOB Mean on an Invoice? Shipping Invoice Definitions

Constraints in the information system or delays in communication often cause a slight timing difference between the legal transfer of ownership and the accounting records. Free on board (FOB) shipping point and free on board (FOB) destination are two of several international commercial terms (Incoterms) published by the International Chamber of Commerce (ICC). Understanding the difference between FOB shipping point and FOB destination is crucial for determining who is liable for goods during transit. In this arrangement, the seller retains liability for the goods until they are delivered to the buyer.

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• Both parties must clearly understand their responsibilities and maintain open communication throughout the shipping process to address any issues that may arise.
• That inventory then becomes an asset in the buyer’s accounting books even though the shipment hasn’t yet arrived.
• However, if the seller wants to minimize risk and offer a complete service (including delivery), FOB Destination would be a better option.
• For example, let’s say Company ABC in the United States buys electronic devices from its supplier in China and signs a FOB shipping point agreement.
• The buyer should record the purchase, the account payable, and the increase in its inventory as of December 30 (the date that the purchase took place).
• Also, shipping point usually implies that the buyer pays for the freight charges to ship the goods.

For FOB Shipping Point agreements, the buyer assumes the risk almost immediately after the transaction starts, which can be unnerving, especially for high-value goods or volatile shipping routes. Incoterms (International Commercial Terms) are a set of internationally recognized standards that define the roles of buyers and sellers in the transfer of goods in international and domestic trade. For FOB Destination Point agreements, ownership transfers at the opposite end of the journey. Specifically, FOB indicates at which point the responsibility (and risk) of the shipped goods transfers from the seller to the buyer.

Are Free on Board Incoterms® the same as Freight on Board Incoterms®?

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• It is important to note that FOB does not define the ownership of the cargo, only who has the shipping cost responsibility.
• Likewise, the buyer won’t officially add the goods to its inventory until they arrive and are inspected.
• If the goods fell overboard at that point or were damaged, they became the buyer’s loss, not the seller’s.
• First developed in 1936, the terms are used by 45 million companies in more than 170 countries.
• When you are shipping loose cargo (ie, not a full container), for example, your goods must go through a Container Freight Station (CFS) to be consolidated into a container.
• Sometimes FOB is used in sales to retain commission by the outside sales representative.

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