The buyer consignee pays the costs of ocean freight, insurance, unloading, and transportation from the arrival port to the final destination. The seller passes the risk to the buyer when the goods are loaded at the originating port.
The first part of the designation determines where the buyer assumes title of the goods and the risk of damage from the seller either at the moment the carrier picks the goods up for delivery or at the time of actual delivery.
The second part indicates responsibility for freight charges. It is important for shippers 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. 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 return shipment could possibly result in additional damages.
If all of this seems too confusing to follow, consider allowing Freightquote to handle the placement of your shipment for transport. FOB is only used in non-containerized sea freight or inland waterway transport.
As with all Incoterms, FOB does not define the point at which ownership of the goods is transferred. The term FOB is also used in modern domestic shipping within the United States to describe the point at which a seller is no longer responsible for shipping cost. Ownership of a cargo is independent from Incoterms. In international trade, ownership of the cargo is defined by the bill of lading or waybill.
The term is always used in conjunction with a port of loading. Indicating "FOB port " means that the seller pays for transportation of the goods to the port of shipment, plus loading costs.
The buyer pays the cost of marine freight transport, insurance , unloading, and transportation from the arrival port to the final destination. The passing of risks occurs when the goods are loaded on board at the port of shipment.
For example, "FOB Vancouver" indicates that the seller will pay for transportation of the goods to the port of Vancouver , and the cost of loading the goods on to the cargo ship this includes inland haulage, customs clearance, origin documentation charges, demurrage if any, origin port handling charges, in this case Vancouver. The buyer pays for all costs beyond that point, including unloading. Responsibility for the goods is with the seller until the goods are loaded on board the ship.
Once the cargo is on board, the buyer assumes the risk. The use of "FOB" originated in the days of sailing ships. When the ICC first wrote their guidelines for the use of the term in ,  the ship's rail was still relevant, as goods were often passed over the rail by hand.
In , in the case of Pyrene Co. Scindia Steam Navigation Co. The seller usually pays for transportation and insurance when the shipping terms are FOB destination; the seller expenses such expenditures when they are incurred because they are considered period costs transportation-out. Let's assume that Manufacturer sells goods to Customer. The shipping terms are FOB shipping point. The transactions listed below took place between Manufacturer and Customer:. The time to deliver goods to Customer is 5 days:.
To record cost of goods sold: To record sales revenue: To record purchase of goods: To record transportation and insurance costs:
FOB destination definition. Terms indicating that the seller will incur the delivery expense to get the goods to the destination. With terms of FOB destination the title to the goods usually passes from the seller to the buyer at the destination.
“Free on board” is a shipping term that refers to the transportation arrangements between a buyer and seller. For accountants, FOB can take two forms: FOB Shipping Point or FOB Destination.
FOB shipping point implies terms of sale under which title of goods passes to the buyer at the point of shipment. FOB shipping point is sometimes called FOB origin. FOB destination implies terms of sale under which title of goods passes to the buyer at the point of . The term FOB shipping point is a contraction of the term "Free on Board Shipping Point." The term means that the buyer takes delivery of goods being shipped to it by a supplier once the goods leave the supplier's shipping dock.
FOB Accounting Definition FOB accounting deals with the treatment of freight charges and how they are recorded in the accounting system. FOB means Free on Board and . FOB Shipping Point. The term FOB shipping point is a contraction of the term Free on Board Shipping Point. It means that the customer takes delivery of goods being shipped to it by a supplier once the goods leave the supplier's shipping dock.