Although FOB shipping point and FOB destination are among the most common terms, other agreements vary from these two. Free on board, also referred to as freight on board, only applies to shipments made via waterways and doesn’t apply to goods transported by vehicle or air. With “Freight Collect,” the seller requests the buyer to pay for the sending costs, but the payment occurs at a different time. In the case of FOB Destination, the seller takes charge of export customs procedures, while the buyer handles import clearance procedures upon the goods’ arrival at the final destination.

FOB and Company Accounting

• Factors like the mode of transportation, the nature of the goods, the relationship between the buyer and seller, and individual preferences can all influence the choice of term.
• The seller either contracts with the shipment carrier or reimburses the buyer for costs.
• A buyer with established relationships with reliable carriers can negotiate FOB Shipping Point to leverage better shipping rates and faster transit times, reducing overall costs and improving efficiency.
• This can be particularly beneficial when handling specialized goods, navigating congested shipping lanes, or managing a tight supply chain that requires precise timing.
• At this point, the buyer will assume all financial and legal responsibility for the products.

We recommend buyers consider FOB Incoterms when they wish to use a China Freight Forwarder to organize their shipments. We suggest this because FOB will offer low unit pricing for the cargo sold while also allowing the seller to take partial responsibility for the freight for as long as it remains within their country. In accounting, only when goods arrive at the shipping destination, they should be reported as a sale and increase in accounts receivable by the seller and as a purchase and inventory by the buyer. It is essential to know when the title of the goods changes from the seller to the buyer. Once the buyer gets hold of the goods, either at the port of origin (FOB Shipping Point) or at the port of destination (FOB Destination), the seller is no longer liable for any damages.

The seller owns the goods during transit and undertakes the risk of loss and damage during transit. FOB shipping point (also known as FOB origin) and FOB destination point reference the moment in the transaction where the title of the goods transfers from seller to buyer. This is a very necessary distinction in that it determines succinctly which party is responsible and liable for any lost or damaged goods during the shipping at any given time. There are many industry terms importers and exporters need to be well-versed in to guarantee their shipping relations are well understood. Some are more common than others, such as Free On Board (FOB), Free Carrier (FCA), and Ex Works (EXW). FOB, while being a fairly common term within freight collect shipping, is largely misunderstood.

One of the key challenges logistics and supply chain professionals face is managing these complex networks of suppliers, manufacturers, distributors, and what is fob destination retailers. With so many moving parts, things don’t take long to go wrong – whether it’s a delayed shipment or an unexpected rise in production costs. Since the shipment is at the FOB shipping point, the delivery is made when the carpets are shipped.

Who pays for customs clearance in FOB? Does FOB include customs clearance?

Since Dara Inc. has experience managing international shipping or wants to save on transport costs, FOB Origin, they decided to go forward this way. However, if the seller wants to minimize risk and offer a complete service (including delivery), FOB Destination would be a better option. However, it also entails drawbacks, including the potential for disputes over transfer points, limited control over the shipping process, and inherent risks of loss or damage during transit. If a shipment is sent under FOB destination terms, the seller won’t record the sale until the goods reach the buyer’s location.

The supplier takes full responsibility for the computers and must reimburse Company XYZ or reship the computers. In this particular arrangement, the buyer takes on the responsibility of paying the sending costs. Unlike “Freight Prepaid and Added,” where the buyer pays the sending cost on their invoice, in this arrangement, the buyer doesn’t pay until they physically receive the items at the final destination.

What Is the Difference Between FOB and CIF?

It excludes international shipping, insurance, and other destination-related costs. This gives buyers greater control and less risk compared to FOB shipping point contracts. The significant difference is that CIF places the cost of shipping and insurance on the seller, unlike a FOB agreement where these are the buyer’s responsibilities. CIF is much more expensive for the buyer because they rely on the seller to include shipping in the price of their products. Shipping costs are pivotal in choosing between FOB Destination and FOB Shipping Point.

With this knowledge, businesses like mine can optimize supply chain strategies and foster better customer relationships. I learned early on that when goods ship under FOB shipping point, I’m responsible as soon as they leave the seller’s warehouse. This means I take on all risks, including damage or loss during transit—a realization that made me double-check every insurance policy.

Once the shipment passes the buyer’s port of destination, all liability will then shift from the seller to the buyer. FOB Destination transfers the responsibility of shipped goods when they arrive at the buyer’s specified delivery location – usually the buyer’s loading dock, post office box, or office building. Once the products arrive at the buyer’s location, the legal title of ownership transfers from the seller to the buyer.

Reducing freight costs with FOB Shipping Point and FOB Destination requires a strategic approach to transportation. Tips include negotiating rates with carriers, consolidating shipments, and using freight payment solutions to streamline the process. One advantage of using FOB Destination is that the buyer has more control over the shipping process. Since the seller is responsible for arranging transportation, the buyer can choose the carrier and shipping method that best suits their needs.

One common misconception is that FOB Destination is always more expensive than FOB Shipping Point. However, the actual cost depends on a variety of factors, including the distance between the buyer and seller, the cost of transportation, and the value of the goods being shipped. Additionally, some buyers may assume that FOB Shipping Point is always the better option because it provides more control over the transportation process, but it may not be feasible for every situation. FOB Shipping Point may be a good option if the buyer wants more control over the transportation process or if they are located closer to the seller. This option can be more cost-effective for buyers in the long run and may provide more flexibility in terms of choosing carriers and shipping methods. FOB Shipping Point can be a good option for buyers who want more control over the transportation process or who are located closer to the seller.