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A Complete Guide to FOB (Free on Board) Shipping

Free On Board Shipping

FOB shipping stands for ‘Free on Board’ shipping that is one of the incoterms (International Commercial Terms) designed by the International Chamber of Commerce (ICC) for international trade, shipping, and transporting of goods. It indicates the liability for goods if they are damaged, lost, or destroyed during international transportation.

FOB shipping states that whether the buyer or the seller is responsible for goods that are destroyed, damaged, or lost during the transition. The cost and the risk involved in the FOB shipment is transferred to the buyer when goods are on board safely at a shipping port. Basically, the term FOB tells about who will be the bearer of the damaged goods during the transit as well as for the cost of freight and insurance.

How is FOB Shipping Beneficial For Buyer & Seller?

The FOB is not only one of the most common incoterms, but it also has some benefits to the shipping process, including:

FOB is the most cost-effective method of shipping goods internationally. The buyer of goods has more control over their shipment.

The suppliers of goods will handle the clearing of goods through the local export process including clearance documents at the port, which saves a buyer further hassles and complications. 

Under the FOB shipping terms, buyers do not need to pay the higher fees for goods protection plans. With FOB, the buyer has more control of the shipping terms, costs, and arrangements that is mainly because they select their freight forwarder.

When a buyer chooses their own FOB carrier, they ultimately have more control over the shipment process, including the ability to decide the route and the transit time. 

Then the buyers have the benefit of choosing and working with the one trusted company throughout the shipping process. That further ensures that they have one central point of contact for any queries or problems that may arise. 

The supplier has the sole responsibility for every aspect of the shipment until it arrives at the destination port at the buyer’s end. Additionally, the goods are insured until the goods arrive at the destination port. 

What Are Some of the Important Terms For FOB Shipping?

FOB shipping is beneficial for several reasons, but most importantly, shippers and buyers need to understand FOB shipping terms.

FOB Shipping Point

FOB shipping point or FOB origin states that the responsibility of goods transfer from the seller to the buyer once the goods are loaded on a delivery vehicle. Once shipping is done, all the legal responsibility of all goods is transferred from the seller to the buyer. 

For example, if a company in India buys smartphones from its supplier in China, and the company signs a FOB shipping point agreement, then in case of any damages to the package during delivery, the company based in India will be responsible for all the losses or damages. In this scenario, the supplier is only responsible for bringing the package to the carrier.

FOB Shipping Point Cost

The seller bears the responsibility of all fees and transport costs until the goods have reached the shipping port of origin. Once this happens the buyer becomes responsible for all costs that are associated with transport, taxes, customs duty, and all other fees.

FOB Destination

The term FOB destination indicates the transfer of goods ownership at the buyer’s physical location. After shipping is done to the buyer’s noted location, the responsibility of goods is transferred to the buyer, who is then legally responsible for them.

FOB Destination Cost

When the goods reach the final destination of the buyer’s point, the responsibility for fees transfers from the seller to the buyer. 

Freight Prepaid and Allowed

The seller is responsible for freight charges and remains the owner of goods during transit.

Freight Prepaid and Added

The seller remains the owner of goods and pays any freight charges and then adds them to the buyer’s bill. 

Freight Collect

Sellers remain the owner of goods during transit. Under freight collection, a buyer bears the full responsibility of freight charges once goods are received. 

Freight Collect and Allowed

Under this contract, the seller pays freight charges during transit. Once the goods are received at the buyer’s end they will pay the freight charges.

How Does the Process of FOB Shipping Works?

So, if you have decided to go for FOB shipping, we recommend using the service of a professional logistics company that works independently from the seller. This way you’ll likely save costs and ensure goods are safely transported to the destination point. Here is how the process of FOB shipping works:

The seller and the buyer both decide the terms of the contract and modes of transportation.

Once the terms of the FOB shipping contract are decided, the supplier will load the goods onto the vehicle and clears the goods for export to the port of destination. 

The products are then transferred through the supply chain to the point of destination. Once they reach the destination, the buyer will pick up the goods from the port of destination to their place. From here the responsibility for the costs of goods and any risk of damage to the freight will be transferred to the buyer.

Why Work With a 3PL Provider? 

FOB shipping and related incoterms are clearly defined terms that play an important role in international trade. These terms define responsibilities and costs to buyers and sellers and protect the interests of both parties.

But, buyers and sellers need to understand incoterms clearly, which can be difficult to do on your own. In this situation, working with a third-party logistics (3PL) provider who has expertise in all incoterms is a wise step. 

It is not advised to take risks with your international shipping that could cost you tremendously high. You can contact a proven third-party logistics like Shiprocket for the right advice on how to handle international shipments and consultation to understand the complexities of incoterms.

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