This means that the seller is responsible for any damages or losses that occur during transportation. As with all Incoterms, FOB does not define the point at which ownership of the goods is transferred. There is a reason FOB shipping is so popular amongst buyers and sellers; each party’s responsibilities give them the most control while the cargo is in their territory. The advantage for the buyer when purchasing under FOB Incoterms is they have the most control over the logistics and shipping costs, which allow them to choose their shipping methods.
Accounting and auditing
Therefore, the seller is legally responsible for the products during transport, up until the point the goods reach the buyer. FOB Destination is different to FOB Shipping Point where the buyer is responsible for the shipping and transportation instead of the seller. FOB Incoterms are also the most cost-effective option, as it allows the buyer to shop for the best possible shipping rate. While the transfer of risk occurs when the goods are safely loaded onto the shipping vessel, the buyer’s forwarder is responsible for the entire transportation process.
What is the difference between FOB and CIF?
- It plainly lays out how far along into the process the supplier will ensure that your goods are moved and at what point the buyer takes over the shipment process.
- Therefore, the seller should continue to report these goods in its inventory until January 2.
- Although the accounting treatment mentioned above aligns with this, it’s worth mentioning that FOB shipping points and destinations transfer ownership at different times.
- The seller is liable for the goods during transit until the port of destination and must cover damage or loss if they occur.
- With clearly defined points for risk and cost transfer, both parties can better understand and plan for their respective responsibilities.
Additionally, if the goods are damaged in transit, the seller is responsible for replacing them at their own expense. In FOB shipping points, if the terms include «FOB origin, freight collect,» the buyer pays for freight costs. If the terms include «FOB origin, freight prepaid,» the buyer is responsible for the goods at the point of origin, but the seller pays the transportation costs.
- Instead, use FCA (Free Carrier), CPT (Carriage Paid To), and CIP (Carriage and Insurance Paid To), which are the correct alternatives as they are meant for containerised freight.
- FOB Shipping Point is commonly used in international trade, where goods are transported across long distances.
- It is also important to ensure proper packaging and labeling of the goods, as well as choosing a reputable and reliable carrier.
- Real-time driver tracking, customer notifications, proof of delivery, and seamless integration with existing systems make Upper a comprehensive solution.
- With a CIF agreement, the seller pays costs and assumes liability until the goods reach the port of destination chosen by the buyer.
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FOB means that the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered. By paying attention to these details, you can craft a watertight FOB agreement that protects your interests and simplifies the shipping process for all parties involved. FOB is not a one-size-fits-all term; it comes with a variety of designations that provide more specific guidance on shipping responsibilities. While “FOB Origin” and “FOB Destination” are standard, there are other terms that offer nuanced differences. When using fob shipping point or FOB Destination, it is important to comply with all legal requirements and regulations.
Only upon delivery, at the predetermined destination, do the costs and responsibilities transfer to the buyer. In classic FOB contracts, sellers are relieved of responsibility and costs for their goods, once the goods are loaded onto a container ship. Generally, FOB is generally specified in a sales agreement and is accounted for under inventory costs.
Legal Requirements for Using FOB Shipping Point and FOB Destination
The seller selects the freight carrier and is responsible for shipping the goods to the final destination point. Assume that a seller quoted a price of $900 FOB shipping point and the seller loaded the goods onto a common carrier on December 30. Also assume that the goods are in transit until they arrive at the buyer’s location on January 2. On December 30, the seller should record a sale, an account receivable, and a reduction in its inventory. Join the digital logistics world and access a vast network of vetted freight forwarders from one single place.
FOB Shipping Point vs. FOB Destination: What’s the Difference?
The supplier’s responsibility ends once the electronic devices are handed over to the carrier. 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. Even though the buyer pays for shipping costs, the seller retains ownership of the goods during transit.
