Free On Board FOB Shipping: Meaning, Incoterms & Pricing

These terms help buyers and sellers specifically set out who they intend to bear the risk of shipping when they enter an agreement. While shipping terms can be confusing, they can be very helpful as well. When your paperwork says FOB [origin], the buyer assumes ownership and control when the products leave the shipping point. In FOB shipping, the sellers/ suppliers are the ones who are responsible for making clearance for the goods at the export docks.

Understanding the differences between each is as simple as knowing how much responsibility the buyer and supplier assume under each agreement. Of the 11 different incoterms that are currently used in international freight, Free on Board (FOB) is the one that you will encounter most frequently. Since the buyer takes possession of the items at its receiving dock, that is also where the seller should document a transaction. Remember that trade laws vary from country to country, so you should always review the laws of the country you’re shipping from. International shipments typically use “FOB” as defined by the Incoterms standards, where it always stands for “Free On Board”. Domestic shipments within the United States or Canada often use a different meaning, specific to North America, which is inconsistent with the Incoterms standards.

What Does FOB Shipping Point Mean?

Until the items have arrived at the buyer’s location, the seller retains legal responsibility for them. Once the products have arrived at the buyer’s location, however, the buyer assumes full legal responsibility for them. Conversely, with FOB destination, the title of ownership is transferred at the buyer’s loading dock, post office box, or office building. 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.

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, bookkeeping for startups 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 of shipment.

Strikingly Shipping Features for Ecommerce Website

And of course, accepting liability for goods adds to the profits and losses, if there is damage during transit. Understanding the terminology and understanding when you’re accepting liability and ownership, is imperative. These provisions outline the point when responsibility for risk of loss shifts to the buyer, who covers the freight charges, delivery location and time, and the payment terms for the shipments. The transportation department of a buyer might insist on FOB shipping point terms, so that it can take complete control over the delivery of goods once they leave a supplier’s shipping dock.

• Only the party that possesses the title can claim the freight as part of their inventory.
• If the goods are damaged in transit, the buyer should file a claim with the insurance carrier, since the buyer has title to the goods during the period when the goods were damaged.
• Realistically, it is quite difficult for the buyer to record a delivery at the shipping point, since this requires proper notification into the buyer’s inventory management system from an outside location.
• This means that the seller is the responsible party and must undertake the cost of any damages or extra fees incurred during the delivery process.
• Traditionally with FOB shipping point, the seller pays the transportation cost and fees until the cargo is delivered to the port of origin.
• (The buyer will record freight-in and the seller will not have any delivery expense.) With terms of FOB shipping point the title to the goods usually passes to the buyer at the shipping point.

Therefore the costs that are incurred during the shipping process as soon as it is loaded on the carrier for transit. In that case, any loss, damages or even additional costs from then onwards will be the buyer’s responsibility. In this case, the seller legally owns the products and is responsible until it gets delivered to the buyer’s address. The title of ownership is transferred at the buyer’s specified address, loading dock, office address, etc.