CIF is commonly used for large deliveries, including oversized goods, that are shipped by sea. The seller also obtains any necessary documentation, licenses, and inspections that may be required. These terms help buyers and sellers specifically set out who they intend to bear the risk of shipping when they enter an agreement. Incoterms do not exist to protect the buyer from fraud or guarantee the products in any way.
Understanding Different Types of FOB Contracts and Their Implications
- Incoterms 2020 rules outline whether the seller or the buyer is responsible for, and must assume the cost of, specific standard tasks that are part of the international transport of goods.
- Clear communication and efficient logistics management are essential to mitigate potential issues.
- This article was first published in January 2017 and has been updated and revised based on the changes made with the release of the Incoterms 2020 rules.
- For help with understanding these terms and a lot more, Unishippers is here for you.
FOB shipping offers several key advantages, especially for experienced importers and exporters who want more control over the logistics chain. Under past versions of Incoterms, loading typically was fulfilled when goods crossed a ship’s rail. Under the current version, loading means when goods are loaded onboard the vessel.
Case Study: Successful Implementation of FOB in International Trade
Once the goods are placed on board, any damage or loss incurred during transit is no longer the exporter’s responsibility. This means that if something happens to the shipment while it is en route, they will what are retained earnings not be liable for any damages or losses suffered. Under FOB terms, the responsibility and cost of the goods are with the buyer from the point when they leave the seller’s premises until they reach their destination port. When the freight must be collected, the person receiving the shipment is responsible for all of the freight charges. 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. However, you should not assume that you are responsible for the shipping costs and liability just because you see FOB on an invoice or agreement.
Why is FOB important for Small Businesses?
FOB stands for “free on board” or “freight on board” and is a designation that is used to indicate when liability and ownership of goods is transferred from a seller to a buyer. In this arrangement, the seller retains liability for the goods until they are delivered to the buyer. This means the seller bears the risk of loss, damage, or destruction during transit, which can impact their reputation and profitability.
Who pays freight charges in FOB shipping?
Understanding these costs prevents unexpected expenses and clarifies who handles logistics in a transaction. There is no special documentation or form needed when selecting an Incoterm; instead, the term should be listed in conjunction with the product price and defined as the agreed-upon incoterm. As a personal trainer turned digital marketer, Diana is obsessed with equipping eCommerce entrepreneurs with everything they need to scale their online businesses. You can catch her doing yoga or hitting the tennis courts in her spare time. The Bill of Lading is a crucial document issued by the arrival port to the carrier or its representative, confirming the receipt of goods and detailing their type, quantity, and condition.
When your paperwork says “FOB destination,” then the buyer assumes the ownership and control of the goods when the products reach their final destination. Unless specifically requested by a buyer, sellers often have preferred Incoterms they use that work best for them and their customers. Buyers can often have unique preferences, which are conveyed to sellers, and through this communication, a buyer and seller can come to an agreement on the most ideal Incoterm for their deal.
FOB Incoterms: What FOB Means and Pricing
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. FOB allows the buyer to select their freight forwarder for the entire shipment. Instead of relying on the supplier for part or all of the freighting process. The buyer only needs to rely on a fob shipping point single company throughout the transportation process, thus, minimizing the back and forth and potential for miscommunication between two shipping companies.
How FOB Works: A Step-by-Step Process
- Shipping costs are reduced, but fewer buyers are willing to accept shipping point terms, especially on large or fragile orders.
- FOB is an internationally recognized standard, making it easier to negotiate and enforce shipping agreements in global trade.
- A shipping point generally refers to the location where goods begin their journey to the final destination.
- Since the seller retains ownership of the items throughout the transportation damage period, the seller should file any claims with the insurance company.
- Since the buyer takes possession of the items at its receiving dock, that is also where the seller should document a transaction.
- Incoterms are published and maintained by the International Chamber of Commerce (ICC).
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. If you would like to be sent a custom rate for your next shipment from China, request a shipping quote, and we will send you a detailed offer. If the same seller issued a price quote of “$5000 FOB Miami”, then the seller would cover shipping to the buyer’s location. Consider your Bakery Accounting options for managing your goods during transit and purchasing cargo insurance.
What is the Difference Between FOB Shipping Point and FOB Destination?
Whether you’re a small business shipping products or a large enterprise managing global logistics, understanding FOB helps you ship smarter. If a shipment is lost or damaged in transit, FOB terms determine who must cover the loss. This makes FOB crucial when choosing whether to purchase additional freight protection. FOB terms prevent misunderstandings by clearly defining financial and legal obligations. They ensure both the buyer and seller know when liability shifts—reducing disputes. At uShip, we make LTL freight shipping simple, cost-effective, and transparent—helping businesses navigate FOB terms with confidence.