The seller is obligated to hand over any documents or information needed to enable the successful import, at the cost of the buyer. Buyer is responsible for insuring the transport of the goods to the final destination. When goods are bought or sold “Free on Board” (FOB) it means that the seller delivers the goods to a ship at a port previously agreed to by the seller and the buyer.

FOB is an International Commercial Term (Incoterm), a predefined commercial term meant to reduce confusion between sellers and buyers about ownership transfer points and responsibility for shipping costs. Specifically, CFR refers to an agreement that stipulates it’s the seller’s duty to clear goods for export, delivery and port onboarding. CIF, however, refers to an agreement whereby the seller covers any costs pertaining to costs, insurance and freight Accounting for Startups: 7 Bookkeeping Tips for Your Startup of a buyer’s product while in transit. For example, in some instances, the buyer might pay freight costs, but this sum will be deducted from the seller’s invoice. This is because FOB is less about who bears the cost of freight, and more about who signs the agreement, pays the bill and ultimately takes responsibility for the shipment. When the freight must be collected, the person receiving the shipment is responsible for all of the freight charges.

Based on a full 20ft container :

With a CIF agreement, the seller pays costs and assumes liability until the goods reach the port of destination chosen by the buyer. The determination of who will be charged the freight costs is usually indicated in the terms of sale. 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. In modern domestic shipping, the term is used to describe the time when the seller is no longer responsible for the shipped goods and when the buyer is responsible for paying the transport costs.

But it’s good practice for either the buyer or seller to obtain China freight insurance. While it is customary for the buyer to arrange insurance, this is often negotiated before confirming the sale. Once you have all of this information from your supplier, you can request a quotation from us, and we will send you a detailed shipping offer for your cargo. In this article, we’ll explore what the advantages are when using a freight forwarder and how they can add value to your business. Read on to learn more about what a customs broker can do for you, what they’ll charge, and the pros and cons of using one for your shipment.

Free on Board Shipping Point vs. Free on Board Destination: An Overview

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. The seller has no legal reason to accept those goods back and the https://business-accounting.net/accounting-for-lawyers-what-to-look-for-in-a-legal/ return shipment could possibly result in additional damages. If your business buys or sells goods overseas, choosing the best Incoterms® rule for your cargo can sometimes be confusing, especially if you’re new to the world of overseas freight shipping. It is much easier to determine when title transfers by referring to the agreed upon terms and conditions of the transaction; typically, title passes with risk of loss.

• By utilizing our easy-to-use self-service tools, you can efficiently manage your shipping strategy, should any issues arise.
• Find out more by speaking to our consultants or start building your own quote today.
• For small products that will inevitably be shipped by air, or small suppliers with little experience working with international buyers, you may receive quotations in EXW Incoterms.
• FOB shipping point might let us find rates cheaper than our printer charged.
• FOB refers to who is responsible for the goods being shipped and when the ownership of those goods changes hands.

Freight collect means that the buyer takes on all of the risks and is responsible for getting insurance and filing a claim if the products are damaged in shipping. FOB is the most common agreement between an international buyer and seller when shipping cargo via sea. FOB allows you to shop for the best shipping rate and know what your total transportation costs are in advance. It is very unlikely that you’ll incur any hidden fees or unforeseen fees when shipping on FOB terms, meaning the price is clear from the outset. In North America, the term “FOB” is written in a sales agreement to determine when the liability and responsibility for the shipped cargo transfers from the seller to the buyer.

Example of FOB Shipping

If you’re buying goods from a supplier based abroad, you’ve probably come across Incoterms. These are International Commercial Terms, defined by the International Chamber of Commerce. Incoterms appear in contracts and quotations from suppliers, and should explain who is responsible for the tasks and costs involved in international shipping. The term is used to designate ownership between the buyer and seller as goods are transported. At the same time, even though the treadmills have not yet been delivered, the buyer has now officially taken responsibility for the goods.

The buyer is also able to delay ownership until the goods have been delivered to them, allowing them to do an initial inspection prior to physically accepting the goods to note any damages or concerns. The fitness equipment manufacturer is responsible for ensuring the goods are delivered to the point of origin. This is the point of primary transportation in which the buyer will now assume responsibility for the treadmills. The equipment manufacturer would not record a sale until delivery to the shipping point; it is at this point the manufacturer would record an entry for accounts receivable and reduce its inventory balance. Under Free on Board, the seller is responsible for delivering the goods to the port of departure, clearing it for export, and loading the goods on the vessel. Once the goods are on the vessel, the risk transfers from the seller to the buyer, who from that point is responsible for all costs thereafter.