FOB Shipping Point vs FOB Destination: What’s the Difference?

These international contracts outline provisions including the time and place of delivery as well as the terms of payment agreed upon by the two parties. When the risk of loss shifts from the seller to the buyer and determining who foots the bill for freight and insurance, all depend on the nature of the contract.

EXW. Ex Works, which only requires the seller to get products ready to be shipped from its location. The buyer is responsible for making any arrangements for shipment and for picking the goods up. That also means that if a pallet of jewelry is lost or damaged in shipment, the buyer must file any claims for reimbursement – not the seller – since fob shipping the shipment became the buyer’s responsibility immediately. The term FOB is also used in modern domestic shipping within North America to describe the point at which a seller is no longer responsible for shipping costs. When shipping goods to a customer, FOB shipping point or FOB destination may be two primary options to choose from.

What is the difference between FOB and CIF?

Alternatively, FOB destination places the burden of delivery on the seller. The seller maintains ownership of the goods until they are delivered.

With FOB destination, ownership of goods is transferred to the buyer at the buyer’s loading dock. 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. If you’ve ever shipped anything, you’ve likely seen the acronym FOB in your shipping documents. Even those in the shipping industry with knowledge offreight shipping terminologyoften are confused as to the true meaning. Incoterms define the international shipping rules that delegate responsibility of buyers and sellers.

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Get cost savings tips, instant quotes, and new ideas to help streamline shipping for your small business. Seven steps you can use to improve the shipper-carrier relationship and ultimately benefit your business. 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. Transfer of ownership occurs when the goods have been delivered to the point of origin .

• When using the term “place of origin” on shipping documents, the seller only maintains ownership of the package until the moment the carrier picks up the package.
• As logic would denote, the further away you’re shipping your freight, the more complicated the process becomes.
• More likely than not, when you’ve shipped something, you’ve come across the FOB acronym.
• The first part of the designation determines where the buyer assumes title of the goods and the risk of damage from the seller .
• FOB conditions may affect inventory, shipping, and insurance expenses, regardless of whether the transfer of products happens domestically or internationally.

When an Incoterms® rule is included in a contract of sale, it creates legal obligations for the buyer and seller, which can have costly implications. Therefore, it is important that traders read and understand the precise wording of the Incoterms® rules carefully and choose the rule to include in their sale contract thoughtfully. For additional information and resources on the Incoterms® rules, and to purchase the full text of the Incoterms® 2020 rules, visit the ICC website. The seller pays for shipping, but isn’t responsible for insurance or freight. The risks transfer to the buyer only when the goods are delivered to a port of destination. FOB destination, or FOB destination point, means that the seller is at risk to pay for the damage until the buyer receives the products. The seller selects the freight carrier and is responsible for shipping the goods to the final destination point.

Different terms Mean Different Accounting

When transporting products to a customer, the two basic alternatives are FOB shipping point or FOB destination. FOB shipping point holds the seller responsible for the products until they begin their journey to the consumer. With FOB destination, the seller is held responsible for the items until they reach the customer.

• Not many know the true FOB definition, but with FOB terminology being so commonly used in cases of international freight shipping, it’s important to understand the ins and outs.
• FOB does not explicitly mean the transportation of goods is free.
• However, if it reads “place of destination,” the seller takes on responsibility until the shipment is delivered.
• For newer importers or importers who have always purchased under Incoterms where the seller organizes the freight costs, the process can seem more complicated, because there is an added step.
• The term ‘free’ refers to the supplier’s obligation to deliver goods to a specific location, later to be transferred to a carrier.

When using the term “place of origin” on shipping documents, the seller only maintains ownership of the package until the moment the carrier picks up the package. However, if it reads “place of destination,” the seller takes on responsibility until the shipment is delivered. As touched on before, the main difference between what FOB shipping point means versus destination is in regards to when the seller transfers responsibility and ownership of the shipment to the purchaser.

After the title is transferred, the seller’s responsibility ends, and it falls to the buyer to ensure their goods reach their final destination promptly and in sound condition. “Freight Collect” refers to the legal fact that the buyer is responsible for all freight charges.

This indeed saves the buyer a considerable amount of complications and unnecessary hassle. In this case, it helps to save up both money and time for the buyer. https://www.bookstime.com/ In the past years, it was only used for the seafaring category of shipments. However, currently, it can be used for just about any mode of transit shipments.

Who Pays Freight for FOB Origin?

In this circumstance, the billing staff must be notified of the changed delivery conditions so they do not charge freight to the consumer. If a seller ships goods to a customer that are lost in transit, the shipper must compensate for the loss by replacing the products or reimbursing the buyer for the cost. Since the shipment is the FOB shipping point, the delivery is made when the carpets are shipped. Bloemen Alle should record the sale of $5,000 on 21 October 2012. This is because it determines the responsibility for both the seller and the buyer. More to that, the it defines the point at which ownership and liability get passed on from one party to the other.

• Freight collect means the buyer is then responsible for all freight charges and is responsible for filing any necessary insurance claims.
• Freight is a term used to mean all the charges payable to the Carrier in accorda…
• The buyer is also able to delay ownership until the goods have been delivered to them, allowing them to do an initial inspection prior to physically accepting the goods to note any damages or concerns.
• With the FOB shipping point, the buyer takes the responsibility for lost or damaged goods and freight.
• CIF places the cost of shipping and insurance on the seller, unlike a FOB agreement where these are the buyer’s responsibilities.

In North America, the term “FOB” is written in asales agreementto determine when the liability and responsibility for the shipped cargo transfers from the seller to the buyer. When it is indicated as “FOB Origin,” it means that the transfer occurs at the seller’s shipping dock when the goods are safely on board the ship. Simply put, an incoterm is the standard contract used to define responsibility and liability for the shipment of goods. It plainly lays out how far along into the process the supplier will ensure that your goods are moved and at what point the buyer takes over the shipment process. FOB destination point refers to a product sold to a customer after it arrives at the buyer’s destination.