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what does fob shipping point mean

International commercial laws have been in place for decades and were established to standardize the rules and regulations surrounding the shipment and transportation of goods. Having special contracts in place has been important because international trade can be complicated and because trade laws differ between countries. FOB, or “free on board,” is a term that appears on purchase orders and shipping documents.

The FOB shipping point means the buyer is responsible for the products they ordered once the seller ships the items. Basically, the buyer takes complete control over the delivery once a freight carrier picks the goods. For most FOB destination shipments, the buyer will be billed for the freight charges immediately. This is extremely helpful when you need to know the total costs upfront while also taking the guesswork out of any surprise fees along the way. FOB shipping point means you choose your delivery method, which can lower costs, or you can avoid liability, even though you’ll likely pay more, with FOB destination.

Who Pays Freight for FOB Origin?

The seller then records a sale and isn’t responsible for the goods anymore during delivery. FOB is important for a number of reasons, but most importantly, shippers and carriers need to understand FOB designations in damage situations. Some receiving docks will refuse delivery of obviously damaged goods, rather than accept with a damage notation for future claim against the carrier. However, a shipment designated FOB Origin technically belongs to the buyer/consignee at the time that it is shipped. So, the consignee would be refusing delivery of goods it legally owns and bears the risk for.

On the flipside, the buyer must note in its accounting system that it has inventory on its way. That inventory is now an asset on the buyer’s books, even though the shipment has not arrived yet. FOB refers to who is responsible for the goods being shipped and when the ownership of those goods changes hands. Specifically, FOB indicates when the seller’s responsibility https://www.bookstime.com/ for the goods ends and the buyer’s responsibility begins. The buyer records the purchase, accounts payable, and the increase in inventory on January 2 when the buyer becomes the owner of the goods. ‘FOB Destination, Freight Prepaid’ is the opposite of ‘FOB Destination, Freight Collect’ and is used to indicate that the seller assumes the cost of freight.

What does FOB mean on a shipping order?

Conversely, when you are selling to an overseas buyer, it is in your best interest for the buyer to become responsible as soon as it leaves your loading dock. Thus, it is important for both the consignor and consignee to define which terms would they use for the shipping contract. The most common trade terms are incoterms (published by the International Chamber of Commerce) but companies that ship to the United States also have to comply with the Uniform Commercial Code. UShip helps you find and book with the right feedback-rated transporter who can haul your large items at the right price. Our technology makes rates and tracking transparent from pickup to delivery.

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. 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. Alternatively, FOB destination places the burden of delivery on the seller. It may be difficult what does fob shipping point mean 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. FOB shipping point, also known as FOB origin, indicates that the title and responsibility of goods transfer from the seller to the buyer when the goods are placed on a delivery vehicle.

Buyer Pays Freight Collect

An FOB, or free on board, shipping point, is a record that explains where merchandise for a shipment is going and when it was shipped. The configuration of an FOB shipping point contractually binds the buyer and the shippers unde the same liability once shipped. Do you have enough slack built into your inventory control processes to tolerate a lost or delayed shipment?

FreightWaves Ratings reference a list of approved sources for use of research to support editorial research and drafting. Instead, it was more cost-effective to ship all the books to Little Rock and have our distributor send a pallet of books to us from there. We also didn’t want to be liable if something happened to our books while they were en route to Arkansas. Freight on board is another term that is often used in place of free on board. This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication.