What Does Free or Freight On Board FOB Mean?

The FOB Incoterms® rule is only applied to goods transported by sea or inland waterway. To further clarify, let’s assume that Claire’s Comb Company in the US purchases a container of The Wonder Comb from a supplier based in China. For FOB shipping, you can get an FOB price estimate using Freightos.com’s International Freight what does fob shipping point mean Rate Calculator. When you are shipping loose cargo (ie, not a full container), for example, your goods must go through a Container Freight Station (CFS) to be consolidated into a container. This guide cuts through the legal jargon and explains everything you need to know about this common incoterm in plain English.

For example, assume Company XYZ in the United States buys computers from a supplier in China and signs a FOB destination agreement. Assume the computers were never delivered to Company XYZ’s destination, for whatever reason. The supplier takes full responsibility for the computers and must either reimburse Company XYZ or reship the computers. Free on board, also referred to as freight on board, only refers to shipments made via waterways, and does not apply to any goods transported by vehicle or by air. When items are transported either domestically or internationally, the delivery must be accompanied by relevant documentation. The amount and type of documentation vary depending on whether the shipment is within the United States or to another country.

A Small Business Guide to FOB Shipping

And for a shipment with FOB affixed with the point of origin, the buyer/consignee technically owns the shipment once it is on board the ship. If he refuses the delivery of the shipment, he has no legal reason to send it back to the seller/consignor https://www.bookstime.com/ and the return shipment could only incur more damage. 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.

Something to watch out for when you pay for the goods is paying more than you need to for the international payment. Many banks and money transfer services hide most of their profit in poor exchange rates. Essentially, in FOB shipping point, the buyer will foot the bill for transport costs from seller to himself. 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. Depending on the agreement with your supplier, your goods may be considered delivered at any point between the port of destination and your final delivery address. Cost, Insurance, Freight (CIF) puts the liability of payment for – you guessed it – cost, insurance, and freight on the supplier.

Are Free on Board Incoterms® the same as Freight on Board Incoterms®?

However, it is common practice for the shipper to hand over the cargo to the carrier at the terminal where it awaits to be loaded onto the vessel. Instead, use FCA (Free Carrier), CPT (Carriage Paid To), and CIP (Carriage and Insurance Paid To), which are the correct alternatives as they are meant for containerised freight. 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. For FOB destination, the seller retains ownership of the goods and is responsible for replacing damaged or lost items until the point where the goods have reached their final destination.

Once the shipment is picked up from the agreed shipping point, a receipt of goods will be waiting. Sure, you want to keep costs low by making your own shipping arrangements, but can you afford the liability if something goes wrong? Know your FOB options, so you can make the best decision based on each situation. If all of this seems too confusing to follow, see how Freightquote by C.H. The legal issues raised in FOB designations are nothing new to us here at Freightquote.