What does FOB mean in a purchase order?
Free on BoardDefinitions. The term "Free on Board" F.O.B. is commonly used when shipping goods to indicate who pays loading and transportation costs, and/or the point at which the responsibility of the goods transfers from shipper to buyer.
Who pays shipping in FOB?
the buyerWith 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.
What does FOB mean on packaging?
Free On BoardFirst of all, F.O.B. stands for Free On Board, and it is an Incoterm. Incoterm stands for International Commercial Terms. FOB indicates the point in the supply chain where the seller relinquishes ownership, and the buyer accepts the owner of products purchased in a specific transaction.
What is difference between CIF and FOB?
The abbreviation CIF stands for "cost, insurance and freight," and FOB means "free on board." These are terms are used in international trade in relation to shipping, where goods have to be delivered from one destination to another through maritime shipping. The terms are also used for inland and air shipments.
Why is FOB good for seller?
FOB is good for a seller as once the product leaves the warehouse the shipment is the responsibility of the buyer. If the shipment is damaged or lost the buyer will need to claim back on it, while the seller considers the deal done once it leaves their premises.
Does FOB mean free shipping?
FOB stands for either "free on board" or "freight on board". The term is used to designate ownership between the buyer and seller as goods are transported. FOB does not explicitly mean the transportation of goods is free.
Why is it called a FOB?
The word “fob” was likely derived from the German fuppe, meaning “pocket.” Before key fobs were an electronic device, they were another word for decorative keychains throughout the 20th century.
What is the difference between FOB and delivered pricing?
Under f.o.b. pricing, buyers face a price that reflects exactly the transportation cost between sellers and themselves. Under uniform delivered pricing (u.d.p.), the seller charges the same price to all buyers, inclusive of delivery.
How do you calculate FOB price?
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.
What's the opposite of FOB?
With FOB, title possession and liability usually shift when the shipment leaves the point of origin. With CIF, responsibility moves to the buyer once the goods reach the point of destination. Simply put, on the whole it's recommended that buyers use FOB, and sellers use CIF.
Which is better for buyer CIF or FOB?
For example, FOB gives buyers more control over transit and insurance costs. Conversely, CIF is more useful when sellers have direct and easy access to shipping.
What is the pros and cons for buying FOB and CIF?
Buyers generally consider FOB agreements to be cheaper and more cost-effective. That's because they have more control over choosing shippers and insurance limits. CIF contracts, on the other hand, can be more expensive. Since the seller has more control, they may opt for a preferred shipper who may be more costly.
Who is liable for FOB destination?
the sellerAlso, under FOB destination terms, the seller is responsible for the cost of shipping the product. If the goods are damaged in transit, the seller should file a claim with the insurance carrier, since the seller has title to the goods during the period when the goods were damaged.
Does FOB Mean buyer pays freight?
Who Pays Freight for FOB Origin? If the terms include the phrase "FOB origin, freight collect," the buyer is responsible for freight charges. If the terms include "FOB origin, freight prepaid," the buyer assumes the responsibility for goods at the point of origin, but the seller pays the cost of shipping.
Who is liable for FOB?
With "FOB destination", the sale is complete at the buyer's doorstep and the seller is responsible for freight costs and liability during transport. The two terms have a specific meaning in commercial law and cannot be altered.
What is the FOB in freight?
Of the 11 different incoterms that are currently used in international freight, Free on Board (FOB) is the one that you will encounter most frequently.
What is a FOB shipping point?
The qualifiers of FOB shipping point and destination are sometimes used to reduce or extend the responsibility of the supplier in an FOB shipping agreement. With FOB shipping point, ownership of goods is transferred to the buyer once they leave the supplier’s shipping point.
What does "free on board" mean?
The term ‘free’ refers to the supplier’s obligation to deliver goods to a specific location, later to be transferred to a carrier. In other words, the supplier is “free” of responsibility. ‘On board’ simply means that the goods are on the ship.
What does "on board" mean in shipping?
In other words, the supplier is “free” of responsibility. ‘On board’ simply means that the goods are on the ship.
What does "FOB" mean in a quote?
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. A city name must always follow FOB.
What is FOB in shipping?
FOB is the most common agreement between an international buyer and seller when shipping cargo via sea. This Incoterm only applies to sea and inland waterway shipments.
What does FOB Mean in Shipping Terms?
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.
What is FOB Incoterms?
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.
Why is FOB shipping so popular?
There is a reason FOB shipping is so popular amongst buyers and sellers; each party’s responsibilities give them the most control while the cargo is in their territory. The advantage for the buyer when purchasing under FOB Incoterms is they have the most control over the logistics and shipping costs, which allow them to choose their shipping methods.
Why do sellers appreciate FOB Incoterms?
Sellers appreciate FOB Incoterms as well because once the cargo leaves their factory, they can consider the sale complete.
Why do freight forwarders need to know what cargo is being shipped?
Type of cargo – freight forwarding companies need to know what is being shipped for two significant reasons. First, certain products require specific documentation, types of containers, include hazardous materials, or are illegal to transport. By telling your forwarder what your cargo consists of from the beginning, they will help you stay prepared in the event any documentation or compliance might be required. The second reason is that they often handle the customs brokerage portion of the import. So the sooner they know what the products are, the faster they can begin preparing the documentation needed to import.
What Does FOB Mean?
FOB means that the responsibility and costs of shipping goods fall not on the seller but on the buyer. There are many advantages to this shift in roles and it is popular in cases where bulk orders are filled. The seller will load the goods onto a ship communicated by the buyer, and the buyer clears the goods for export.
What Does FOB Shipping Point Mean?
When you are shipping via Free on Board it will be stated as FOB, [destination]. For instance, if the buyer is located in Kansas, Missouri the shipping label would state FOB, Kansas. Once the shipment arrives at the FOB destination the buyer can accept it and the sale will be completed.
What is free on board?
Free on Board entails that the cost for delivery of goods is the responsibility of the buyer. Any additional costs or claims will also be at the discretion of the buyer. From the perspective of the buyer, once the goods have left their premises they are no longer their responsibility.
What are the advantages of FOB?
This means that they can get a good deal on freight services and not have to rely on the seller’s chosen delivery method. This can lower the cost of purchase significantly.
Is FOB good for a seller?
FOB is good for a seller as once the product leaves the warehouse the shipment is the responsibility of the buyer. If the shipment is damaged or lost the buyer will need to claim back on it, while the seller considers the deal done once it leaves their premises.
What is a FOB in a sales agreement?
The phrase “passing the ship’s rail” was dropped from the Incoterm definitions in the 2010 amendment. In North America, the term “FOB” is written in a sales agreement. Sale and Purchase Agreement The Sale and Purchase Agreement (SPA) represents the outcome of key commercial and pricing negotiations.
What does FOB origin mean?
When it is indicated as “FOB Origin,” it means that the transfer occurs at the seller’s shipping dock when the goods are safely on board the ship. The buyer takes responsibility for the transport cost and liability during transportation.
What is freight on board?
Freight On Board is an international legal term that requires a seller to deliver goods on board a shipping vessel to the buyer. The seller is required to meet his obligations regarding the goods. The costs associated with shipping goods from the seller’s warehouse to the buyer’s store include transport costs to the port of shipment, loading goods onto a shipping vessel, marine freight transport, unloading costs, insurance, and costs of transporting the goods from the arrival port to the final destination.
Where did the term "freight on board" come from?
The term “freight on board” originated from the days of sailing ships when goods were “passed over the rail by hand ,” as defined in Incoterm. The term “FOB” was used to refer to goods transported by ship since sea transport was the main method of transporting cargo from far countries. The term’s usage has changed since then, and its definition varies from one country and jurisdiction to another. The phrase “passing the ship’s rail” was dropped from the Incoterm definitions in the 2010 amendment.
Who takes ownership of the goods and assumes liability at the point of origin?
The buyer also takes ownership of the goods and assumes liability at the point of origin. FOB Destination, Freight Prepaid: The seller/shipper pays all the shipping costs until the cargo arrives at the buyer’s store. The buyer does not pay any shipping costs.
Who is responsible for freight costs?
If the Freight On Board is indicated as “FOB delivered,” the seller or shipper will be wholly responsible for all the costs involved in transporting the consignment. Where the FOB terms of sale are indicated as “FOB Origin,” the buyer is responsible for the costs involved in transporting the goods from the seller’s warehouse to the final destination. It is important to note that FOB does not define the ownership of the cargo, only who has the shipping cost responsibility. The ownership is defined by the bill of lading or waybill.
Who is responsible for the freight costs and liability during transportation?
The buyer takes responsibility for the transport cost and liability during transportation. “FOB Destination” means that the transfer completes at the buyer’s store and the seller is responsible for all of the freight costs and liability during transport.
