What is FOB Destination?

FOB destination or Freight on Board Destination is an incoterm, which means that the seller is the legal owner of the goods until they reach the buyer's destination. It is a self-explanatory term that defines the rights, responsibilities, and ownership of the buyer and seller in a transaction.

When we define FOB destination, we can find out when the liability moves from the seller to the buyer. In this case, the liability moves once the goods have reached the destination, i.e., the buyer's location.

Thus, all the responsibilities and costs associated with transporting the goods to the buyer are borne by the seller. He must pay for the transportation, freight and insurance if needed. Once the goods reach the buyer’s destination, all the responsibilities shift to the buyer along with its ownership.

-Aspects of Freight on Board Destination

There are three main aspects of freight on board destination that one should be aware of in order to understand this shipping term better.

-Onus of Goods Transportation: Transporting the goods to the buyer’s location is the responsibility of the seller. The seller must arrange to transport the goods safely to the specified location.

-Cost Allocation: The seller pays for the export duties, licencing, customs clearances and shipping. The buyer pays the import charges when the shipment reaches him.

-Transfer of Risk and Ownership: The risk and ownership of the goods transfer from the seller to the buyer once the goods reach the buyer.

-Provide Destination Details: The buyer must provide the seller with the exact and accurate delivery details so the delivery can be made on time and in a smooth manner.

-Receive the Goods: When the shipment reaches the destination, the buyer must unload it and receive the goods.

-Pay for Unloading Charges: Any costs that are associated with the unloading of goods must be borne by the buyer.

-Inspecting the Goods: The buyer must carefully inspect the goods once they arrive at the destination and in case of any damage, they must raise a claim with the insurance company.

-Ownership of Goods: Once the goods get delivered to the buyer, he must accept their ownership and take full responsibility for them.

-Free on Board Destination: Pros and Cons For Buyer**

-Pros:

• The buyer does not pay any shipping costs as the seller pays all the costs till the goods reach the destination.

• The buyer bears minimum risk as the seller bears all the liabilities and risks.

• It allows the buyer to inspect and assess the goods when they arrive before accepting the ownership.

-Cons:

• Since the seller manages the shipping process, the buyer has no control over it..

• Any delay in the delivery of the goods also delays the ownership of the buyer. Thus, the buyer has to wait until the goods reach their destination.

-Pros:

• The seller has the authority to choose the carrier of his choice and negotiate the prices as per his wish.

• Sellers can attract more customers who want to receive the goods without worrying about the shipping process.

• Buyers prefer those sellers who take responsibility for the goods till they reach the buyer’s location.

-Cons:

• Sellers have to bear the shipping costs, insurance charges, etc., which can lead to higher initial expenses.

• The sellers have to bear the liability for the goods for a longer time if the shipment gets delayed. Thus, they have to bear the risk for more time.

• The export clearance procedure can be complicated, which the seller must handle.

Choosing a FOB destination as your shipping method is a strategic move. Now that you know what the meaning of FOB is in shipping terms, you must also know when the right time to opt for this shipping method is. Here are the circumstances under which you may want to opt for a FOB destination.

-Risk Reduction: If you have a low risk-bearing capacity, you must opt for FOB destination as your shipping method. Under this method, the risk shifts to the seller until you receive the goods.

-Minimum Cost: Under this shipping method, the maximum cost is borne by the seller. Thus, if you want to reduce the cost burden, and avoid shipping and other expenses, you may consider FOB destination.

-Export Clearance: As a buyer, if you do not have much knowledge about export clearance, you must choose this shipping method. You can take advantage of the seller’s contacts and experience to ensure smooth export clearance.

-Efficient Shipping: If your seller has an excellent shipping record and can manage the shipment efficiently, you must choose a FOB destination.

Understanding the various aspects, pros and cons of freight on board destination is essential for the buyers and sellers. It makes them aware of their rights, risks and responsibilities and prepares them for their fulfillment.

Another crucial aspect of the shipping industry is insurance, which needs attention from the owner of the goods. The perils of the sea come uninvited; hence, it is crucial to buy a cargo insurance policy to safeguard the goods from any damage during transit due to theft, fire, natural disasters, etc.

While buying marine insurance, rely on a trustworthy provider such as TATA AIG. We offer excellent insurance plans with comprehensive coverage to ensure your goods are protected from numerous dangers on land and in the sea. Our marine insurance policy covers a wide range of products, including hazardous materials, perishable items, high-value products, etc.

You can also benefit from the features of our marine insurance in India, such as quick claim settlement, flexible coverage, international waters coverage, liability protection, customised coverage and so on.

-What are FOB shipping terms?

Some of the FOB terms are:

FOB destination, freight prepaid and allowed

FOB shipping point

FOB shipping point, freight prepaid

FAS or Free alongside

FOB destination, freight prepaid and added

FOB destination, freight collect

FOB destination, freight collect and allowed

-Does FOB destination benefit the buyer or seller?

FOB destination is advantageous to the buyer as the seller bears the risk, responsibility and ownership until the goods reach the buyer’s destination.

-How is FOB different from EXW?

Under FOB, the seller bears the responsibility of the goods up to a specific designation. However, under EXW, the buyer must bear all the costs starting from the seller’s premises.

-What is FOB shipping?

FOB shipping is an incoterm that defines the point at which the risk and responsibility of the goods transfers from the seller to the buyer. Under FOB shipping, the buyer assumes the ownership of the goods once they leave the seller’s port.