FOB originally referred to overseas shipments by boat, but its use in the U.S. more generally applies to all forms of delivery transport, including truck, rail, and air. The buyers are always responsible for the freight costs to ship products under FOB Incoterms. Once you are satisfied with the shipping quotation, the next step is to inform your logistics company that you would like to use them to ship your products.

These terms determine ownership and payment responsibilities, influencing everything from shipping documents to customs clearance. Also known as “FOB Shipping Point,” this term means the buyer assumes both ownership and all freight costs right from the seller’s location or originating port. Freight Collect is often the choice for businesses that prefer to have full control over every aspect of the shipping process, from selecting shipping terms to managing freight charges. However, this method does place the onus of risk and responsibility firmly on the buyer’s shoulders, from the point of FOB designation to the goods’ arrival at the buyer’s location.

Which is better CIF or FOB?

Contracts involving international transportation often contain abbreviated trade terms that describe conditions such as the time and place of delivery, payment, when the risk of loss shifts from the seller to the buyer. Other items include who pays the costs of freight and insurance considerations. The more common terms are called Incoterms, which the International Chamber of Commerce (ICC) publishes. In modern domestic shipping, the term is used to describe the time when the seller is no longer responsible for the shipped goods and when the buyer is responsible for paying the transport costs. Ideally, the seller pays the freight charges to a major port or other shipping destination and the buyer pays the transport costs from the warehouse to his store or vendors.

Some are more common than others, such as Free On Board (FOB), Free Carrier (FCA), and Ex Works (EXW). FOB, while being a fairly common term within freight collect shipping, is largely misunderstood. In this article, ShipCalm will explore what FOB is, the pros and cons of FOB, and how a third-party logistics company like ShipCalm can help your business with all its shipment needs. Cost, insurance, and freight (CIF) and free on board (FOB) are international shipping agreements used in the transportation of goods between buyers and sellers. They are among the most common of the 11 international commerce terms (Incoterms), which were established by the International Chamber of Commerce (ICC) in 1936.

What Are Incoterms?

Something to watch out for when you pay for the goods is paying more than you need to for the international payment. Many banks and money transfer services hide most of their profit in poor exchange rates. In a general sense, though, many buyers prefer FOB destination deals as seller takes on the risk of transport. Even if you’ve decided that FOB is the best decision for you, there are still a few more nuances. While in many FOB scenarios the costs are split between seller and buyer, there are ways in which the seller actually foots most of the transport bill or, conversely, that the buyer takes on most of the transport responsibility. Free on Board shipping is further broken down into either FOB Destination or FOB Shipping Point, which essentially determines who foots the majority of the transportation bill – the buyer or the seller.

• Once the goods are delivered to the buyer’s specified location, the title of ownership of the goods transfers from the seller to the buyer.
• This means that no matter where you ship from, you will encounter the same regulations.
• Freight collect means the person receiving the shipment is responsible for all freight charges.
• FOB freight prepaid and added specifies that the seller is obligated to pay the freight transportation charges.

It stands for “Free on Board” or “Freight on Board”, and it defines shipping terms specific to transit by sea and inland waterways — it is not applicable to air, rail and road transit. A free on board (FOB) designation specifies whether the buyer is responsible for freight charges and determines the obligations of parties when trading goods. There two main types of free on board freight—FOB destination and FOB shipping point—with several sub-designations.

Country/region

The term “shipping point” might seem straightforward, but when paired with FOB, it takes on a much more nuanced meaning. A shipping point generally refers to the location where goods begin their journey to the final destination. This could be a seller’s loading dock, a shipping port, or an originating port where a freight forwarder consolidates shipments. FOB freight prepaid and added specifies that the seller is obligated to pay the freight transportation charges. The seller assumes the risk of loss of or damage to goods during transportation because the seller owns the goods during transit.

The buyer only needs to rely on a single company throughout the transportation process, thus, minimizing the back and forth and potential for miscommunication between two shipping companies. Freight on Board (FOB), also referred Specialized Tax Services STS accounting method: PwC to as Free on Board, is an international commercial law term published by the International Chamber of Commerce (ICC). It indicates the point at which the costs and risks of shipped goods shift from the seller to the buyer.

FOB (shipping)

Buyers and sellers often confuse FOB by understanding the shipment can be sent by any mode of transportation; this is not correct. The International Commerce Center (ICC), explains FOB is only viable for sea and inland waterway shipments. When not shipping via sea, buyers and sellers could consider FCA as a comparative Incoterm which works for all modes of transport. While shipping costs are determined by when the buyer takes ownership of a particular order of goods, a company’s accounting system is also impacted. If a shipment is sent FOB Shipping Point (the seller’s warehouse), then the sale is concluded as soon as the truck pulls out of the seller’s loading dock and is noted in the accounting system as such. Free on Board (FOB) is a shipment term that defines the point in the supply chain when a buyer or seller assumes responsibility for the goods being transported.

Indicating “FOB port” 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 https://business-accounting.net/top-5-best-software-for-law-firm-accounting-and/ of shipment. Responsibility for the goods is with the seller until the goods are loaded on board the ship. Essentially, when the seller delivers the goods and ships them, they’re taking care of all the transportation costs up to the final destination. This often involves specifying in the shipping documents that freight is prepaid.

Freight

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 term is used to designate ownership between the buyer and seller as goods are transported. FOB stands for “free on board” or “freight on board” and is a designation that is used to indicate when liability and ownership of goods is transferred from a seller to a buyer.