The terms that are included along with FOB determine when ownership of the goods changes hands. With the advent of e-commerce, most commercial electronic transactions occur under the terms of "FOB shipping point" or "FCA shipping point". "FOB destination" means the transfer occurs the moment the goods are removed from the transport at the destination. Both Cost, Insurance, and Freight (CIF) and Freight on Board (FOB are international shipping terms used in the transportation of cargo from the seller to the buyer. "FOB origin" means the buyer will assume the title of the goods as soon as the carrier/hauler picks up and signs for the shipment. This is basically the DEFAULT pricing used when dealing with suppliers in China. Although both terms are used in a similar manner, their definitions vary from country to country.In CIF agreements, the costs of transporting goods from the seller to the buyer are assumed by the seller. In the modern era of containerization, the term "ship's rail" is somewhat archaic for trade purposes, as with a sealed shipping container, there is no way of establishing when damage occurred after the container has been sealed. If the terms include the phrase "FOB destination, freight collect," the seller has title and control over the shipment until it's been delivered, and the buyer is responsible for freight charges. When the ICC first wrote their guidelines for the use of the term in 1936,[2] the ship's rail was still relevant, as goods were often passed over the rail by hand. In North America, FOB is written into a sales agreement to determine where the liability responsibility for the goods transfers from the seller to the buyer. Knowing the different FOB combinations is important for businesses shipping and receiving freight. In most cases, the freight hauler or delivery company (such as FedEx, UPS, Conway) is not involved, but in some instances, the freight hauler is liable as well. They will also pay for the loading costs onto the vessel. If the freight is damaged or lost, the insurance policy of the owner is in effect. As you can see in the infographics, Incoterms FOB ensure that all obligations relating to costs, risk and insurance of the goods are split between the buyer and the seller in a fair way. The shipping terms that follow "FOB" dictate who pays for shipping and when the ownership of goods is transferred. In North America, FOB is written into a sales agreement to determine where the liability responsibility for the goods transfers from the seller to the buyer. FOB terms of sale establish which party (vendor or retailer) will be liable for the transportation costs, which party is in control of the movement of the goods, and when (date/time) the title passes to the buyer. It is the location where ownership of the merchandise transfers from seller to buyer. Thus, the buyer or importer will assume the burden of cost for marine freight transport, unloading of goods, insurance and any costs when the products reach the destination port. For example, "FOB Vancouver" indicates that the seller will pay for transportation of the goods to the port of Vancouver, and the cost of loading the goods on to the cargo ship (this includes inland haulage, customs clearance, origin documentation charges, demurrage if any, origin port handling charges, in this case Vancouver). [10] Use of the term "Freight On Board" in contracts is therefore very likely to cause confusion. FOB is a term, which means that the seller only pays for product transportation up to the shipment or export port. When referring to domestic shipping within the US, FOB can mean “Freight On Board,” but the legal meaning of the shipping term is “Free On Board.” There are two types of FOB in shipping. [6][7], The two terms have a specific meaning in commercial law and cannot be altered. Once on the ship, all liability transfers to the buyer. How to Manage Transport Documentation: Logistics and Supply Chain, What You Need to Know About International Shipping Terms, Protect Your Business by Understanding Different Freight Charges, The 7 Best Shipping Companies for Small Business of 2021. "Free on Board" means that the seller fulfils his obligation to deliver when the goods have passed over the ship's rail at the named port of shipment. Due to potential confusion with domestic North American usage of "FOB", it is recommended that the use of Incoterms be explicitly specified, along with the edition of the standard. FOB – FREE ON BOARD (named port of shipment): The seller must themselves load the goods on board the ship nominated by the buyer, cost and risk being divided at ship’s rail. The term "Freight On Board" is not mentioned in any version of Incoterms, and is not defined by the Uniform Commercial Code in the USA. For domestic shipments, there are three key documents to be aware of: the bill of lading, the freight bill, and the Free On Board (FOB) terms of sale. In this scenario, the seller is responsible for the freight charges. Matthew Hudson wrote about retail for The Balance Small Business, and has almost three decades of experience in the retail industry. Some vendors will offer longer terms for payment, but the start date is based on FOB date. Any vendor-client transaction should have the FOB terms spelled out very clearly in purchase orders. The term is always used in conjunction with a port of loading.[1]. Doing Business. Responsibility for the goods is with the seller until the goods are loaded on board the ship. What Are Transportation Accessorial Fees? If the same seller issued a price quote of "$5000 FOB Miami", then the seller would cover shipping to the buyer's location. ... What is more, many hidden costs relating to CIF shipping are shifted to the buyer in the port of discharge. A standard FOB arrangement states that the responsibility for the goods remains with the seller as far as the port selected for shipping. FOB stands for "free on board" or "freight on board." In this case the specific terms of the agreement can vary widely, in particular which party, buyer or seller, pays for the loading costs and shipment costs, and/or where responsibility for the goods is transferred. "FOB origin" means the transfer occurs as soon as the goods are safely on board the transport. The FOB term requires the seller to clear the goods for export. "FOB origin" (also sometimes phrased as "FOB shipping" or "FOB shipping point") indicates that the sale is considered complete at the seller's shipping dock, and thus the buyer of the goods is responsible for freight costs and liability during transport. ", United States Court of International Trade, Quinn v. United States and United States Secretary of the Treasury, https://en.wikipedia.org/w/index.php?title=FOB_(shipping)&oldid=997095945, Short description is different from Wikidata, Creative Commons Attribution-ShareAlike License, This page was last edited on 30 December 2020, at 00:11. Although FOB has long been stated as "Freight On Board" in sales contract terminology, this should be avoided as it does not precisely conform to the meaning of the acronym as specified in the UCC.[7]. It is much easier to determine when title transfers by referring to the agreed upon terms and conditions of the transaction; typically, title passes with risk of loss. The buyer bears all the shipping expenses and is responsible to get the products from that port to its final destination. By using FOB the seller must clear the goods for export and delivers when the goods pass the ship’s rail at the agreed port. In that case, it was the term used to generally refer to the goods shipped by sea since it was the major transportation method for shipping cargo from abroad. “Free On Board”, or FOB, occurs when the seller delivers the goods to the port of shipment, at which then it becomes the responsibility of the buyer once unloaded onto a vessel. 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. [7] Further to that, it has been found in the US court system that "Freight On Board" is not a recognized industry term. Freight collect means the buyer is then responsible for all freight charges and is responsible for filing any necessary insurance claims. Shipping term: Description: FOB: Free on Board: The seller quotes a price including the cost of delivering goods to the nearest port. [4][5] For example, "FOB New York (Incoterms 2000)". Free on Board – which is more … FOB stands for “free on board” or “freight on board.” The shipping terms that follow “FOB” dictate who pays for shipping and when the ownership of goods is transferred. Indicating "FOB port" means that the seller pays for transportation of the goods to the port of shipment, plus loading costs. There are two possibilities: "FOB origin", or "FOB destination". For example, at year- and period-end goods in transit under "FOB destination" (North American usage) appear on the seller's balance sheet but not in the buyer's balance sheet, as the risk and rewards of ownership change to the buyer at the "destination" port. 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