FOB Shipping: Defining Freight and Free on Board

The critical juncture in any FOB agreement is often the shipping point—whether it’s a loading dock, shipping port, or any originating port. When a seller records that goods have been safely loaded onto a shipping vessel, FOB terms like “FOB Origin” or “FOB Shipping Point” indicate that the buyer is now responsible for all shipping costs and risks. FOB is a widely used shipping term that applies to both domestic and international transactions.

Consider shipping costs

It’s an agreement between the buyer and seller that specifies when the ownership and liability for the goods being shipped transfer from the seller to the buyer. 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. If “Freight Prepaid” is where the seller takes on the shipping costs, “Freight Collect” flips that script.

• For businesses shipping a lot of goods back and forth, understanding FOB is the key to knowing who is liable for the safe delivery of a shipment and who owns the goods at any given point in the shipping cycle.
• If “Freight Prepaid” is where the seller takes on the shipping costs, “Freight Collect” flips that script.
• In this comprehensive guide, you’ll find key insights into the nuts and bolts of FOB—from its basic meaning to its various designations like FOB shipping point and FOB destination.
• Furthermore, once the goods leave the port of origin, the seller has limited control over the shipment and may face delays during transit.
• FOB Destination transfers the responsibility of shipped goods when they arrive at the buyer’s specified delivery location – usually the buyer’s loading dock, post office box, or office building.

FOB shipping point vs. FOB destination

If the shipping contract uses the term “FOB shipping point”, the department store chain is responsible for any damage or loss during transit and shoulders the cost of insuring the shipment. After the title of goods is transferred, the buyer then assumes responsibility for transport and liability for the goods to reach their own unloading dock. FOB means that you, as the buyer, are responsible for the goods as soon as they are loaded onto the ship on the seller’s end.

• Which means you may still want to decide between FOB shipping point and FOB destination.
• CIF is a more expensive contract option than FOB, as it demands more effort and expense on the part of the supplier.
• Domestic shipments within the United States or Canada often use a different meaning, specific to North America, which is inconsistent with the Incoterms standards.
• The passing of risks occurs when the goods are loaded on board at the port of shipment.
• This concept is crucial as it determines who is responsible for the shipment and any damages that may occur during transit.

Transfer of Ownership

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. Doing any kind of international buying or selling means choosing the best way to ship goods. If your business buys or sells overseas, you may be wondering about FOB, or “Free On Board” shipping. Now that we’ve covered everything you need to know about FOB warehouses, let’s move on to understanding what FOB Shipping Point means and its implications for businesses.

When an order is “FOB origin,” it means the transfer of ownership happens when it leaves the seller’s hands. If any shipping is required to get the goods to the buyer, the buyer will contract for that shipping and pay for it. This can also be referred to with the name of the city, such as FOB Boston, FOB Honolulu, or FOB San Francisco. Shippers and carriers need to know FOB designations in case the shipment is damaged or lost because some receiving ports refuse delivery of damaged goods instead of accepting the shipment with a damage notation. However, if the shipment is defined as “FOB destination”, the glassware manufacturer carries the risk for any damage or loss while the goods are shipped and is responsible for buying the insurance policy. The difference between shipping point and destination is at what point does the seller transfer ownership of the shipment to the buyer.

• Instead, the manufacturer retains ownership of the equipment until it’s delivered to the buyer.
• FOB means that you, as the buyer, are responsible for the goods as soon as they are loaded onto the ship on the seller’s end.
• This means the seller retains ownership and responsibility for the goods during the shipping process until they’re delivered to the buyer’s specified location.
• The supplier’s responsibility ends once the electronic devices are handed over to the carrier.

Likewise, the buyer won’t officially add the goods to its inventory until they arrive and are inspected. Because of this, misunderstanding FOB shipping point terms can be costly for buyers. Imagine you’re a small business owner who secures a deal to import antique furniture from an overseas supplier. fob shipping point You see the term “FOB shipping point” in the contract but, unsure what it means, you sign away. Unless there are additional terms in the shipping agreement, buyers handle any freight charges for FOB shipping point goods from when the shipping vessel departs to when they receive their purchase.

Shipping/freight costs

FOB shipping point vs FOB destination