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For any loss or damage of the package while in the shipping process, with FOB shipping point, it is the buyer who can file a claim to the insurance carrier and not the seller anymore. It is understood that the buyer is liable for the package the moment it leaves the FOB location (seller’s location) and gets shipped to the FOB address (buyer’s address). FOB shipping point transfers the title of the shipment when the goods are placed at the shipping point. This is usually the seller’s loading dock, delivery truck, or postage office. As soon as the seller brings the goods to the point of shipment, the legal title of those goods passes to the buyer and the seller is no longer responsible for the goods during delivery. If the carrier damages the package, the buyer can’t come after the seller because the title has already transferred.
You purchase goods from a supplier in China and agree to FOB shipping terms. The next three steps of the process are carried out at the supplier’s expense. This is because it determines the responsibility for both the seller and the buyer.
AccountingTools
FOB shipping point terms indicate that the buyer assumes ownership of the goods as soon as they leave the supplier’s location. They also indicate that the buyer must pay to have the goods shipped. The accounting treatment of the FOB shipping point is important since adding costs to inventory means the buyer doesn’t immediately recognize an expense. This delay in recognizing the expense and changes in the buyer’s inventory affects the net income. Under the FOB shipping point terms, the buyer pays the shipping cost from the factory and becomes responsible for the goods in case of any damages during the shipment.
The question about who will be held accountable for the shipment, between the buyer and the seller, is certainly an important matter to discuss. It is ideal to have a transparent agreement between both parties so that it would end up to a smooth transaction on both sides. A misunderstanding about what kind of agreement the seller and the buyer has, whether FOB destination or FOB shipping point, can lead to unpleasant experiences and legal problems. In this situation, the billing staff must be aware of the new delivery terms so that it does not bill freight charges to 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.
What is the Difference Between FOB Shipping Point and FOB 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 . 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. To properly define FOB shipping point or free on board shipping point, it indicates that the buyer takes responsibility for loss or damage of the package once it gets shipped. The seller then marks it as a complete sale from its FOB warehouse when the package is delivered to the shipper.
Cost, Insurance, Freight puts the liability of payment for – you guessed it – cost, insurance, and freight on the supplier. An FOB shipping point agreement is signed and the container is handed off to the freight carrier at the shipping point. Upon delivery of the goods to the destination, the title for the goods transfers from the supplier to the buyer. From there, the title for the goods transfers from the fob shipping point 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. With FOB shipping point, ownership of goods is transferred to the buyer once they leave the supplier’s shipping point. The term ‘free’ refers to the supplier’s obligation to deliver goods to a specific location, later to be transferred to a carrier.
FOB Meaning and a Brief History
Bloemen Alle is a Russian businessman engaged in the export of carpets. It received an order worth $5,000 from a Dubai-based customer on 10 October 2013, and the supplier was asked to ship the carpets by 25 October 2012 under the FOB agreement. Free on Board is one of the commonly used shipping terms, which means that the legal title to the goods remains with the Supplier until the goods reach the buyer’s location. When your paperwork says “FOB ,” then the buyer assumes the ownership and control of the goods when the products reach their final destination.
Does FOB shipping point mean that the buyer accepts ownership?
FOB shipping point terms indicate that the buyer assumes ownership of the goods as soon as they leave the supplier's location. They also indicate that the buyer must pay to have the goods shipped.
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. Simply put, an incoterm is the standard contract used to define responsibility and liability for the shipment of goods. It plainly lays out how far along into the process the supplier will ensure that your goods are moved and at what point the buyer takes over the shipment process. Therefore, the designation in such a case determines the responsible party for the freight charges payment.
Shipping Done Right: FOB Shipping Point vs FOB Destination
Therefore, if goods are sent to a FOB shipping point, the sales process gets concluded as soon as the carriers exit the sellers loading dock. The two terms have a specific meaning in commercial law and cannot be altered. In this case the specific terms of the agreement can vary widely, in particular which party, buyer or seller, pays for the loading costs and shipment costs, and/or where responsibility for the goods is transferred. The last distinction is important for determining liability or risk of loss for goods lost or damaged in transit from the seller to the buyer. 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.
