FOB Incoterms in Shipping Meaning, Cost & Delivery Point

The seller passes the risk to the buyer when the goods are loaded at the originating port. In FOB, for a seller the cost or price will be the price of goods as decided by both parties, and it also includes the inland transit cost of goods since the delivery till the destination port is carried out by him. FOB value for both buyer and seller can be calculated as per these costs incurred by them as per FOB rules. This means that the buyer immediately assumes ownership and liability when the seller loads the goods on the freight carrier.

• Free on Board shipping is further broken down into either FOB Destination or FOB Shipping Point, which essentially determines who foots the majority of the transportation bill – the buyer or the seller.
• Since the quoted price typically excludes transportation and insurance costs, the final landed cost for the buyer can often be higher than FOB Destination.
• However, the interchanging use of free and freight can lead to some confusion, especially considering the terms abbreviation, FOB.

⚓ For Sea & Inland Waterway Transport Only:

Since Dara Inc. has experience managing international shipping or wants to save on transport costs, FOB Origin, they decided to go forward this way. However, if the seller wants to minimize risk and offer a complete service (including delivery), FOB Destination would be a better option. Since the quoted price typically excludes transportation and insurance costs, the final landed cost for the buyer can often be higher than FOB Destination. This can make the seller’s offer less competitive and potentially impact sales volume.

FOB destination is a type of Incoterm (international commercial term) used in international trade. It means that a seller pays for all shipping costs and that a transaction is not complete until the goods reach the buyer’s destination undamaged. Buyers and sellers often confuse FOB by understanding the shipment can be sent by any mode of transportation; this is not correct. The International Commerce Center (ICC), explains FOB is only viable for sea and inland waterway shipments. When not shipping via sea, buyers and sellers could consider FCA as a comparative Incoterm which works for all modes of transport. It is an international trade term indicating the starting point at which responsibility and ownership for goods move from the seller to the buyer during shipment.

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. Receivers may be under the assumption FOB implies shippers bear the responsibility of liability and payment. However, the use of the term also includes additional stipulations that allow for the determination of the responsible payer for freight costs, ownership of freight while in transit and liability. The buyer will look after FOB import customs, as the export procedures will already be carried out by the seller.

Understanding FOB Terms

The buyers are always responsible for the freight costs to ship products under FOB Incoterms. 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. Below we have included a list of the route timelines and estimated rates to ship standard containers via FOB from China. This centuries-old shipping term has evolved into a critical concept of determining the reliability and ownership transfer. The internationalization of markets and technological progress in logistics, distribution, and communication means this affects almost every product consumers buy.

How is “FOB” used in shipping documents?

“Prepaid” means the seller has paid the freight; fob meaning “collect” indicates the buyer is responsible for payment. FOB Incoterms are also the most cost-effective option, as it allows the buyer to shop for the best possible shipping rate. While the transfer of risk occurs when the goods are safely loaded onto the shipping vessel, the buyer’s forwarder is responsible for the entire transportation process. Once the cargo leaves the seller’s warehouse, the buyer is in possession of the load, and can better control the successful outcome of their shipment. CIF (Cost, Insurance, and Freight) and FOB (Free on Board) are two widely used Incoterm agreements.

The FOB Incoterms® rule is only applied to goods transported by sea or inland waterway. An FOB shipping point agreement is signed and the container is handed off to the freight carrier at the shipping point. Upon delivery of the goods to the destination, the title for the goods transfers from the supplier to the buyer. With FOB destination, ownership of goods is transferred to the buyer at the buyer’s loading dock. From there, the title for the goods transfers from the supplier to the buyer immediately and if anything happens to the goods at any leg of the journey to the buyer from there, the buyer assumes all responsibility.

Alternatively, work with the seller to add additional coverage for shipping costs into your contract. The seller includes the cost of goods, delivery to the port of destination, and all export requirements. FOB pricing will always include a seaport where the seller agrees to export. Anytime a quotation includes FOB, it means the seller confirms this responsibility. FOB is the most common agreement between an international buyer and seller when shipping cargo via sea. The choice between FOB Origin and FOB destination depends on the specific needs of both parties.

• The seller is always responsible for paying export customs clearance in the country of origin when agreeing to use FOB, as they have to get the goods cleared and “free” for the buyer.
• We recommend buyers consider FOB Incoterms when they wish to use a China Freight Forwarder to organize their shipments.
• The buyer’s influence extends to logistics decisions, and freight charges, allowing for strategic choices in transportation methods and ensuring alignment with their specific requirements and preferences.
• When you agree to receive items under FOB shipping point terms, it’s essential to be aware of your liabilities.
• The seamless movement of goods across international boundaries is crucial for businesses involved in global commerce.
• When goods are labeled as FOB shipping point, the seller’s role in the transaction is complete when the purchased items are given to a shipping carrier and the shipment begins.

The word originally entered the English language in either the 18th or 19th centuries, and was originally related to pocket watches. Eventually, “fob” would denote items hanging not just from our pocket watch chains, but also our keys. Our team of experts can help you assess your options and choose the best shipping agreement for your needs so that you can make an informed decision about whether FOB is right for your business.

Understanding freight on board or free on board (FOB) is essential for importers and exporters in the complex world of global trade. As businesses delve into the negotiation process, the flexibility of FOB terms allows tailoring agreements to align with unique circumstances and preferences. This clarity minimizes uncertainty, ensuring a smooth transfer of goods and facilitating transparent negotiations. Determining ownership and responsibility at a defined location enhances the efficiency and reliability of global trade transactions. Under Free on Board, the seller is responsible for delivering the goods to the port of departure, clearing it for export, and loading the goods on the vessel.

Check our pages for Sea Freight Incoterms:

Likewise, at the buyer’s request, the seller may contribute his assistance to the buyer for insurance and customs provisions. Overall, FOB shipping offers a straightforward way to manage the logistics of international shipments. For help with understanding these terms and a lot more, Unishippers is here for you. We will help you address shipping questions and concerns so you can focus on your business. See why SMBs love 3PLs to see if working with a 3PL, like Unishippers, can help you answer all of your shipping term questions and more.

FOB on an invoice refers to Free on Board, an Incoterm that indicates which party is responsible for paying the cost of transporting goods in international trade. The seller (shipper) retains ownership of the freight until it delivers, making them liable for lost, stolen or damaged products from origin to destination. The buyer (consignee) is the official owner of the cargo starting at its origin, they assume all liabilities at this point.

FOB Shipping Meaning

Regarding drawbacks, there aren’t many, but exporters should be aware of the potential for delays in shipment if it is held up at customs or other ports of call. The point of risk transfer from seller to the buyer depends on whether you’re using FOB origin or destination. When “FOB” appears on your shipping documents, you need to understand what it means; if you don’t, and something goes wrong, you may be left with unexpected expenses which are the last things you need.

As such, FOB shipping means that the supplier retains ownership and responsibility for the goods until they are loaded ‘on board’ a shipping vessel. CIF means “cost, insurance, and freight.” Under this rule, the seller agrees to pay for delivery of goods to the destination port, as well as minimum insurance coverage. 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.

Even then, he will still require proof of export customs by the seller to carry out the shipping process. After the shipping process is cleared he will look after the import clearance procedures and then load goods for inland transportation. Additionally, FOB terms can help streamline operations by eliminating unnecessary paperwork and processes related to international shipments. Since the exporter’s responsibility ends once they deliver the goods onto the vessel, they don’t need to worry about tracking or monitoring shipments as much as they would with other types of shipping agreements.