FOB shipping point What is an FOB shipping point?

Incoterms apply to both international trade and domestic trade, as of the 2010 revision. Under the Incoterms 2020 standard published by the International Chamber of Commerce, FOB is only used in sea freight and stands for “Free On Board”. In today’s highly competitive business landscape, understanding the financial health of a business is crucial.

Well, FOB is one of the most commonly used terms for international trade. This is because this method offers some of the most effective terms for shipping costs. For that reason, it happens to be convenient for most shippers as well as receivers.

Who Pays for Shipping in FOB Shipping Point?

FOB means the seller will not bear the costs; the buyer pays the respective costs. The seller holds the responsibility and risk of shipment in the FOB Destination point. As the name suggests, any package that originates from a different country location than its destination country falls under these categories.

• Sometimes FOB is used in sales to retain commission by the outside sales representative.
• And in that case, it has become almost inevitable for the supply chains to exist in a country without purchasing or selling products and the raw materials from foreign countries.
• The seller maintains ownership of the goods until they are delivered.
• FOB Origin focuses on the buyer’s complete responsibility once the goods are received at the decided port or destination.
• FOB shipping stands for free on board which in some cases is referred to as Freight on board.

We’ve reached the part of our journey where we must look for potential risks and liabilities. While FOB shipping points can provide some great benefits, it’s also important to be aware of the potential dangers lurking in the deep waters of the shipping process. Batten the hatches and have insurance coverage to avoid unfortunate mishaps. Once the goods are loaded onto the carrier at the FOB shipping point, you assume ownership and responsibility for any damages or losses during transit.

Potential Risks and Liabilities

This is important for the accounts, as it dictates when the amounts are entered in the records. FOB Destination is a shipping term that means that the legal title to the goods remains with the seller until the goods reach the location of the buyer. On the other hand, FOB warehouse destination means ownership and responsibility for transferring the goods from the seller to the buyer upon arrival at the buyer’s destination. It’s like a game of hot potato, where the goods are passed back and forth until they finally land in the buyer’s hands.

It may be difficult to record delivery precisely when the goods have arrived at the shipping point. Due to constraints to an information system or delays in communication, it is more realistic that there is a slight timing difference between the legal arrangement and the accounting arrangement. Free on board, also referred to as freight on board, only refers to shipments made via waterways, fob shipping point and does not apply to any goods transported by vehicle or by air. Therefore a company cannot and should not recognize revenue until the goods have arrived on location of the customer. Let’s break it down, FOB Shipping is one of the 11 Incoterms rules set by the International Chamber of Commerce. The FOB Incoterms rule is only applied to goods transported by sea or inland waterway.