The shipment is sent to Newark, New Jersey, and the watches are damaged in transit. The seller is responsible and either must deliver new watches or reimburse Company A if they’ve already purchased the products. 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 transfer of title may occur at a different time (or event) than the FOB shipping term. The transfer of title is the element of revenue that determines who owns the goods and the applicable value.
- Sure, you want to keep costs low by making your own shipping arrangements, but can you afford the liability if something goes wrong?
- If you’re ordering many products from a single seller, you may have more leverage to negotiate FOB destination terms, as the cost of shipping per unit will likely be lower for the seller.
- FOB refers to the point of ownership transfer, while price encompasses the overall cost of goods, including manufacturing and additional freight charges.
- Do you have enough slack built into your inventory control processes to tolerate a lost or delayed shipment?
With FOB destination, ownership of goods is transferred to the buyer at the buyer’s loading dock. Upper utilizes data-driven insights and cutting-edge fob shipping point tools to streamline delivery routes and enhance logistics. Its advanced algorithm maximizes efficiency and cost-savings in your supply chain.
FOB destination means the seller pays all costs
Before negotiating, make sure you understand the consequences of using FOB shipping point or FOB destination for your purchase—in terms of costs, risks, and responsibilities. Some companies will offer different international shipping for different types of products. When it comes to the FOB shipping point option, the seller assumes the transport costs and fees until the goods reach the port of origin. This means that your shipment is in the proverbial hands of the supplier through the process of transporting them to a port and loading them aboard a ship. As such, FOB shipping means that the supplier retains ownership and responsibility for the goods until they are loaded ‘on board’ a shipping vessel.
What is the difference between FOB shipping point and FOB destination?
FOB (Free On Board) puts more responsibility on the buyer after goods are loaded, with the buyer covering costs and insurance. CIF (Cost, Insurance, and Freight) involves the seller handling both transportation and insurance costs until the goods reach the destination port. The “and allowed” phrase indicates that the seller adds shipping costs to the invoice, and the buyer agrees to pay, even if the seller manages the shipment. The buyer pays for the shipment, but the seller remains responsible for the goods until delivery. Despite the seller covering shipping costs, the ultimate responsibility and risk for the products rests with the buyer.
Free on Board (FOB) Shipping Point
The seller retains liability until the buyer accepts the goods, ownership, and liability at the receiving dock, office or agreed-upon place of transfer, after inspecting for damage. With FOB shipping point, the buyer pays for shipping costs, in addition to any damage during shipping. The buyer is the one who would file a claim for damages if needed, as the buyer holds the title and ownership of the goods. The seller pays for freight costs until the goods reach the buyer’s specified destination in FOB destination agreement.
Hopefully, the buyer in this example took out cargo insurance and can file a claim. Due to agreed FOB shipping point terms, they’ll have no recourse to ask the seller for reimbursement. When shipping goods to a customer, FOB shipping point or FOB destination may be two primary options to choose from. The buyer records the purchase, accounts payable, and the increase in inventory on January 2 when the buyer becomes the owner of the goods.
If you use inventory management software, track each FOB delivery online to keep a close eye on it from departure to arrival. With the advent of e-commerce, most commercial electronic transactions occur under the terms of “FOB shipping point” or “FCA shipping point”. Sometimes FOB is used in sales to retain commission by the outside sales representative.