What You Need to Know About FOB (Free On Board) Shipping (2024)

FAQs

What You Need to Know About FOB (Free On Board) Shipping? ›

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. The buyer owns the product en route to its warehouse and must pay any delivery charges.

What Is FOB Pricing? The costs associated with FOB can include transportation of the goods to the port of shipment, loading the goods onto the shipping vessel, freight transport, insurance, and unloading and transporting the goods from the arrival port to the final destination.

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, insurance, unloading, and transportation from the arrival port to the final destination.

Freight on board, also known as free on board, refers to a set of Incoterms that govern who owns and pays for a shipment when traveling overseas. Although its original definition was used exclusively for seafaring transport, modern use of the term can be applied to all shipment modes of transit.

A buyer can save money by using FOB Destination since the seller assumes costs and liability for the transportation. However, the disadvantage for the buyer is the lack of control over the shipment including shipment company, route and delivery time.

In FOB shipping point, the seller pays for the shipping costs to bring the goods to the shipping point. The buyer is then responsible for paying the shipping costs to take possession of the goods.

In FOB shipping point agreements, the seller pays all transportation costs and fees to get the goods to the port of origin. Once the goods are at the point of origin and on the transportation vessel, the buyer is financially responsible for costs to transport the goods such as customs, taxes, and fees.

One of the main disadvantages for seller under FOB terms is that the exporter does not have any control over main carriage, import clearance and on carriage of goods to final destination. The tracking of shipping details is depended with the buyer as he undertakes main carriage and on carriage contract.

Most buyers choose FOB because it's arguably the most affordable or cost-effective option. Under the FOB terms, buyers do not usually pay the higher fees that CIF protection plans incur. With Free On Board, the buyer has more flexibility and control of the terms, the cost, freight planning, and more.

FOB Origin, Freight Collect: The buyer pays for freight and shipping costs and assumes full responsibility for the cargo. FOB Origin, Freight Prepaid, & Charged Back: The seller does not pay the cost of shipping, but instead adds the freight costs to the invoice sent to the buyer.

Why is FOB called free on board? ›

Free on board, often abbreviated as “F.O.B.,” applies to the sale of goods and indicates that purchased property will be placed on board a vessel for shipment at a designated place without expense to the buyer for packing, potage, cartage, etc.

There are two types of FOB, which are FOB destination and FOB shipping point. The type of FOB to be used is typically designated in a customer's purchase order, and is also stated on the supplier's invoice to the customer.

FOB Value = Ex-Factory Price + Other Costs

(b) Other Costs in the calculation of the FOB value shall refer to the costs incurred in placing the goods in the ship for export, including but not limited to, domestic transport costs, storage and warehousing, port handling, brokerage fees, service charges, et cetera.

In a widely used geographic pricing strategy, the seller quotes the selling price at the point of production and the buyer selects the mode of transport and pays all freight costs. Usually referred to as FOB factory pricing, this strategy is the only one in which the seller does not pay any of the freight costs.

Under FOB shipping terms, the seller is responsible for all costs involved in the process up until the goods are on a vessel at the designated port. Once goods have been loaded onto the vessel the buyer is responsible for any costs and risks involved in the onward shipment.

Free on Board, or FOB is an Incoterm, which means the seller is responsible for loading the purchased cargo onto the ship, and all costs associated. The point the goods are safe aboard the vessel, the risk transfers to the buyer, who assumes the responsibility of the remainder of the transport.

Here is how the process of FOB shipping works: The seller and the buyer both decide the terms of the contract and modes of transportation. Once the terms of the FOB shipping contract are decided, the supplier will load the goods onto the vehicle and clears the goods for export to the port of destination.

When they chose FOB, these buyers do not account for their risk of loss. Under FOB, risk of loss passes only after the product has been loaded onto the vessel (crosses the rail). Since risk of loss transfers when the product crosses the rail, the buyer purchases insurance that covers the product at that point.

Description: The FOB is an important part in a purchase contract. It indicates who selects the carrier, which party is to bear the freight charges and who has the title to the goods during the shipment.

The buyer is responsible for everything, including freight and shipping costs, as well as liability for the cargo.

What is an example of a FOB? ›

Examples of FOBs in the Usage

FOB shipping destination, freight prepaid by the seller – The seller pays all the cost, and the buyer owns responsibility only after receiving the shipment. The buyer will not pay any shipping costs.

However, overall, the most common FOB term is FOB Origin, Freight Collect. This means that the buyer immediately assumes ownership and liability when the seller loads the goods on the freight carrier. Basically, the seller can mark the goods as “complete” in their books and the buyer handles the rest.

Free on Board, or FOB is an Incoterm, which means the seller is responsible for loading the purchased cargo onto the ship, and all costs associated. The point the goods are safe aboard the vessel, the risk transfers to the buyer, who assumes the responsibility of the remainder of the transport.

FOB stands for Free on Board and it is an acronym used in the shipping and deliveries industry. FOB changes the rules for who is responsible for a shipment, shifting it from the seller to the buyer. Free on Board can be used to reduce costs for both the buyer and seller.

FOB Value = Ex-Factory Price + Other Costs

(b) Other Costs in the calculation of the FOB value shall refer to the costs incurred in placing the goods in the ship for export, including but not limited to, domestic transport costs, storage and warehousing, port handling, brokerage fees, service charges, et cetera.

Most buyers choose FOB because it's arguably the most affordable or cost-effective option. Under the FOB terms, buyers do not usually pay the higher fees that CIF protection plans incur. With Free On Board, the buyer has more flexibility and control of the terms, the cost, freight planning, and more.

FOB means Free On Board. [FOB Value = Ex-Factory Price + Other Costs] If terms of delivery of a transaction are on FOB, then the cost of movement of goods on board the vessel is borne by the seller, all other expenses to deliver the goods has to be borne by the buyer.

Traditionally with FOB shipping point, the seller pays the transportation cost and fees until the cargo is delivered to the port of origin. Once on the ship, the buyer is responsible financially for transportation costs, customs clearance, fees, and taxes.

One of the main disadvantages for seller under FOB terms is that the exporter does not have any control over main carriage, import clearance and on carriage of goods to final destination. The tracking of shipping details is depended with the buyer as he undertakes main carriage and on carriage contract.