FOB Incoterms: What FOB Means and Pricing

This guide cuts through the legal jargon and explains everything you need to know about this common incoterm in plain English.

Examples of FOB Shipping Point and FOB Destination

In reality, F.O.B. shipping point refers to the location where ownership of the goods passes from the seller to the buyer. Additionally, another common misunderstanding is that F.O.B. shipping point implies that the seller is responsible for the goods during transit, which is not the case, and the buyer bears the risk of loss or damage during transit. The primary advantage of using F.O.B. shipping point is that it can reduce the seller’s shipping costs as the buyer takes possession of the goods at the shipping point, reducing transit time and minimizing inventory holding costs. However, the buyer incurs the cost and risk of transportation once the goods leave the shipping point. Another disadvantage is that the buyer may have to bear the cost of damage or loss of goods that occur during transit.

Free on Board (FOB) Incoterms 2020 Rules Guide

FOB is always followed by a designation to indicate when the seller’s obligation ends. An “FOB Dallas” shipment means the wholesaler will cover shipping costs and owns the goods until you receive them. 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. Free on Board (FOB) is a shipping designation in international trade, indicating the point at which responsibilities and risks of goods transfer from seller to buyer. The seller must pay all costs until the goods have been delivered under A2 (meaning loaded on board the vessel for FOB) except any costs the buyer must pay as stated in B9.

• When goods are labeled with a destination port, the seller stays responsible for damages, lost items, and other costs and issues until the shipment is complete.
• After a dormant few years, Curry brought back the gesture for an even bigger stage — the Olympics — using it to great effect during his fourth-quarter explosion over France and Victor Wembanyama.
• Therefore, understanding the implications of F.O.B. shipping point is crucial for effective supply chain management and successful business operations.
• This centuries-old shipping term has evolved into a critical concept of determining the reliability and ownership transfer.

China FOB – Standard Rates and Timeframes

CIF is much more expensive for the buyer because they rely on the seller to include shipping in the price of their products. On the day your cargo is scheduled to leave, the seller’s warehouse and your logistics company will arrange a truck to collect it. Be sure to ask your forwarder if they can communicate with the supplier or prefer you to organize all communication. In contrast, we recognize that having our team in China means we can better coordinate directly with suppliers and be prepared to react in the event of any delays or issues before the shipping day. If you are shipping a full container load (FCL), the truck will carry the container to the seller’s warehouse, and the seller will load the cargo directly into the container. For small products that will inevitably be shipped by air, or small suppliers with little experience working with international buyers, you may receive quotations in EXW Incoterms.

Alternatively, FOB destination places the delivery responsibility on the seller. The seller maintains ownership of the goods until they are delivered, and once they’re delivered, the buyer assumes ownership. Shipping terms affect the buyer’s inventory cost because inventory costs include all costs to prepare the inventory for sale. This accounting treatment is important because adding costs to inventory means the buyer doesn’t immediately expense the costs, and this delay in recognizing the cost as an expense affects net income. 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).

Potential Disputes Over Transfer Points

• FOB is a shipping term that stands for “free on board.” If a shipment is designated FOB (the seller’s location), then as soon as the shipment of goods leaves the seller’s warehouse, the seller records the sale as complete.
• In F.O.B. destination, title and ownership of goods transfer to the buyer only when the goods reach their destination.
• The bespectacled 25-year-old from Worcester, Massachusetts, sat practically still during the men’s team final waiting his turn to take to the pommel horse, his only event in Paris.
• Bob Ronai’s background in exporting and importing stretches over more than 50 years, initially in international banking then in the world of international commerce.
• In the Incoterms® 2020 rules, as in previous versions, FOB requires the seller to place the goods on board the vessel nominated by the buyer.

Free on Board, commonly referred to as F.O.B., is a shipping designation used to specify obligations and responsibilities for goods when they are shifted from seller to buyer as sea freight. Export customs clearance and origin terminal handling charge must be assumed by seller. This term is traditionally created for bulk transportation, where some cargo can be lost during the process of loading (i.e. f.o.b. point grains taken away by wind or boxes dropped in the ocean). 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. Depending on where the cargo is traveling, they will usually send you some documentation, and ask you to sign an agreement stating that you wish for the forwarder to handle your shipment.

Just enter the dimensions and weight of your goods and specify the port of shipment, and you’ll get your FOB price calculation instantly. Remember, while FOB and other Incoterms are internationally recognized, trade laws vary by country. So, if you’re buying or selling globally, review the laws of the country you’re shipping from. FCA or “free carrier” means a seller is obligated to deliver goods to a specified location or carrier where the buyer will take responsibility for transit.

• If the goods are being shipped by air, title passes when the goods are loaded onto the aircraft.
• Free on board (FOB) shipping clarifies predicaments like this by defining exactly when ownership of transported goods changes from one party to another.
• 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.
• Once you have all of the above information, requesting a quotation from your supplier is easy, and you should be able to get your shipping rates in a couple of hours.
• At first glance, it might seem strange that both seller and buyer are responsible for pre-shipment inspections.
• Free on board, also referred to as freight on board, only applies to shipments made via waterways and doesn’t apply to goods transported by vehicle or air.

Another win would be the ninth Olympic gold of her career, which would be tied for second for the most gold medals in the Olympics, Summer or Winter, in any sport. The bespectacled 25-year-old from Worcester, Massachusetts, sat practically still during the men’s team final waiting his turn to take to the pommel horse, his only event in Paris. The first week of the Paris Games has belonged to Biles, who went into the halfway mark with gold medals in the women’s team final and the all-around and drew a star-studded crowd every time she competed. She now has nine medals in her Olympic career, including six golds, more than any other American gymnast. In the next installment of PARCEL Counsel, we will look at the factors to be considered in choosing, modifying and negotiating the basic UCC F.O.B. term of sale.