Free On Board FOB Shipping: Meaning, Incoterms & Pricing

fob shipping

That’s because the buyer can negotiate a cheaper price for the freight and insurance with a forwarder of their choice. In fact, some international traders seek to maximize their profits by buying FOB and selling CIF. That’s because the seller may use a transport carrier of their choice who may charge the buyer more to increase the profit on the transaction. Communication may also be problematic if the buyer relies solely on people who act for the seller.

  • However, this doesn’t necessarily mean the overall cost will be higher, as this price includes some transport costs.
  • These are International Commercial Terms, defined by the International Chamber of Commerce.
  • Once the goods are at the point of origin and on the transportation vessel, the buyer is financially responsible for costs to transport the goods such as customs, taxes, and fees.
  • It may be difficult to record delivery precisely when the goods have arrived at the shipping point.
  • Buyers generally consider FOB agreements to be cheaper and more cost-effective.

Cost, Insurance, Freight (CIF) puts the liability of payment for – you guessed it – cost, insurance, and freight on the supplier. An FOB shipping point agreement is signed and the container is handed off to the freight carrier at the shipping point. From there, the title for the goods transfers from the supplier to the buyer immediately and if anything happens to the goods at any leg of the journey to the buyer from there, the buyer assumes all responsibility. The qualifiers of FOB shipping point and destination are sometimes used to reduce or extend the responsibility of the supplier in an FOB shipping agreement. The most common international trade terms are Incoterms, which the International Chamber of Commerce (ICC) publishes, but firms that ship goods within the U.S. must adhere to the Uniform Commercial Code (UCC). FOT (Free on Truck) is a term referring to cargo being carried by truck and can be used when shipping goods by truck.

Example of FOB Shipping

Assume the computers were never delivered to Company XYZ’s destination, for whatever reason. The supplier takes full responsibility for the computers and must either reimburse Company XYZ or reship the computers. FOB shipping point, also known as FOB origin, indicates that the title and responsibility of goods transfer from the seller to the buyer when the goods are placed on a delivery vehicle. 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.

fob shipping

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. Here’s a brief comparison of how costs are divided, using FOB and Ex Works Incoterms – and there’s more about EXW terms in this helpful article. FOB is one of the most commonly used Incoterms – so you’ll not be surprised to hear that it has a few distinct advantages. FOB – which stands for Free on Board – is an Incoterm you might have come across when negotiating the purchase of goods for import to the UK. It may be difficult to record delivery precisely when the goods have arrived at the shipping point. Due to constraints to an information system or delays in communication, it is more realistic that there is a slight timing difference between the legal arrangement and the accounting arrangement.

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However, importing is an expensive process, and you’ll want to evaluate all your options, to make sure you get the right deal for your business. In this case, the seller completes the sale in its records once the goods arrive at the receiving dock. In general, the accounting entries are often performed earlier for an point transaction than an FOB destination transaction.

In practice it should be used for situations where the seller has direct access to the vessel for loading, e.g. bulk cargos or non-containerised goods. Use of this rule is restricted to goods transported by sea or inland waterway. 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. Unlike FOB shipping, the supplier is not required to ensure the safe movement from port to ship. Understanding the differences between each is as simple as knowing how much responsibility the buyer and supplier assume under each agreement. If anything happens to the goods on any leg of the journey to the buyer, the supplier assumes all responsibility.

Customs Support

Under Free on Board, the seller is responsible for delivering the goods to the port of departure, clearing it for export, and loading the goods on the vessel. Once the goods are on the vessel, the risk transfers from the seller to the buyer, who from that point is responsible for all costs thereafter. The buyer is responsible for transporting the goods to the final destination. The buyer is also responsible for arranging and paying for any import documents and taxes. The seller is obligated to hand over any documents or information needed to enable the successful import, at the cost of the buyer. Buyer is responsible for insuring the transport of the goods to the final destination.

  • The seller is responsible for arranging and paying for transportation to the ship and is also responsible for loading the goods onto the ship.
  • 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.
  • As with all Incoterms, FOB does not define the point at which ownership of the goods is transferred.
  • The term FOB is also used in modern domestic shipping within North America to describe the point at which a seller is no longer responsible for shipping costs.

This can make life easier as you’ll usually only then have one point of contact to get your goods to the UK. Under FOB terms, your seller will arrange for the goods to be moved locally to the port you agree in the country of origin. They’ll also sort out the export processes there, and have the Bookkeeping for Nonprofits: A Basic Guide & Best Practices goods loaded onto a ship for you. This means you don’t need to worry about navigating an unfamiliar export procedure, or finding local haulage firms. It also means that, if there is an error in the export declaration, and the costs of customs duty go up, the seller will be charged, not you.

Use of Delivery at Place

The goods are considered to be delivered into the control of the buyer as soon as they’re loaded onto the ship. When the voyage begins, the buyer then assumes full liability, including transport, insurance, and additional fees. Under a FOB agreement, the supplier assumes responsibility until the goods are loaded onto the shipping vessel.

fob shipping

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