Free on Board (FOB) Shipping Points

Fob full form in export stands for ‘Free on Board’ shipping. It is an international commercial term used to imply the liability of goods in transit if they are damaged, lost or destroyed. The term also defines the point at which the title and ownership of the goods will transfer from the seller to the buyer, who is liable to bear the cost if the goods are damaged in transit and so on.

FOB shipping, in simple terms, means that the buyer is the owner of the goods as soon as the shipment leaves the point of origin. This also means that the buyer is responsible for the goods while they are in transit, including all associated costs in case of any damage.

FOB rules apply to goods transported by sea and inland waterways. The terms and conditions are included in the contracts and agreements, along with all the necessary details.

Understanding the terms of free on Board (FOB) shipping is crucial for both the buyer and seller in international trade. It ensures that both parties know their exact rights and obligations, thereby facilitating a smooth and efficient transaction.

-FOB Shipping Point

FOB shipping indicates that the liability and ownership of goods transfer to the buyer as soon as the goods are handed over to the shipment vehicle thus, if any damage or loss to the goods shall be borne by the buyer.

-FOB Destination

The term FOB destination implies that the ownership of goods transfers to the buyer only once it has reached the destination, i.e. the buyer’s location.

-FOB Shipping Point Cost

This term indicates that the seller must bear the costs and responsibility of the goods till they reach the shipping port of origin. Once the goods reach the port, thereafter, the responsibility shifts to the buyer.

-FOB Destination Cost

Once the goods reach the destination port, the buyer is responsible for them. The buyer must pay all the freight and transport charges.

-Freight Collect

This term means the seller is the owner of goods while they are in transit. The buyer takes responsibility for the freight and charges once the goods are delivered to him.

-Freight Prepaid & Added

When the contract contains the term freight prepaid and added, it means that the seller retains the ownership of the goods and bears the freight and other charges. However, he adds these charges to the buyer’s bills once the goods are delivered.

-Freight Prepaid & Allowed

The seller assumes responsibility as the owner of the goods and bears the freight charges while the goods are in transit.

-FOB Shipping:

-Advantage to the Buyer

-Cost Effective: FOB shipping is more cost-effective to buyers as they have the freedom to choose the freight forwarder according to their preferences and budget. They can manage the costs as they wish and avoid spending an extra amount.

-Gives Shipment Control: The buyer is free to choose the transit route, time, shipping terms, etc. Thus, they have more control over the shipment and they can decide about delivery term fob and other aspects of the shipment the way they wish to.

-Single Shipment: If a buyer purchases goods from multiple suppliers, he can consolidate all the orders into one shipment and reduce shipment costs. When all the goods are shipped in a single shipment, the buyer is saved from the hassle of tracking multiple shipments.

-Logistics Customisation: The buyer can customise the logistics by integrating multiple orders into a single shipment. It also allows him to use his preferred freight forwarders.

-Disadvantages of FOB for the Buyer

-More Risk, More Responsibilities: Since the shipment becomes the buyer’s responsibility from the shipping port, the buyer has to bear more responsibilities and more risks associated with the goods.

-Higher Cost: Arranging a freight forwarder, bearing the risk, dealing with insurance, etc., can be a costly affair for the buyer.

-Complex Process: Selecting a freight forwarder and navigating through the international shipping landscape can be a complex process, especially if the buyer lacks expertise.

-FOB shipping Points:

-Advantage to the Seller

-Less Risk, Less Responsibility: Under FOB shipping, the risk and responsibility of the seller come to an end as soon as the shipment leaves his port.

-Simple Pricing Process: Since the buyer bears all the expenses related to the goods, the seller has to charge a simple price. Thus, the seller saves time lost in unnecessary pricing hassles.

-Focus on Business: Since all the responsibility is transferred to the buyer, the seller can sell the goods and get back to focusing on his core business.

-Free on Board Shipping:

-Disadvantages For the Seller

-Lower Pricing: The seller may offer a lower pricing to the buyer to compensate him for increased risk.

-Loss of Control: Once the goods reach the shipping point (origin), the seller loses control over them. He has no say in how and when the goods get transported, etc.

-Also Read: What is FOB in Marine Insurance

Here are a few things that one must look forward to at the time of FOB shipping terms:

-FOB terms: All the documents, contracts, etc., must clearly state if the shipment is an FOB shipping point or an FOB shipping destination.

-Location: The documents must specify the delivery term FOB, including the exact location of the shipment origin and shipment destination.

-Responsibilities: The time when the buyer and seller assume responsibility as owners must be clearly defined.

-Date and Time: The documents must contain the details of the date and time when the goods will arrive at the shipping point and when they will be delivered to the destination.

-The Conditions of the Goods: The condition of the goods must be documented at the time of shipping from the origin and at the destination. The condition documentation is crucial in times of insurance claims and disputes.

Buyers and sellers engaged in the marine business must be well aware of the various incoterms so they know the extent of their rights and obligations for each shipment. Alongside knowing the crucial terms, one must also be aware of the importance of a marine insurance policy.

It is an essential aspect of the marine business, as cargo insurance policy protects your goods against the unforeseen perils of the sea, roads, air and railways. While your goods are being transported you can rest assured about their safety with the right marine insurance.

You can trust TATA AIG marine cargo insurance as it offers extensive coverage and also assists you in fulfilling industry regulatory compliances. Our insurance plans feature a swift settlement process, flexible coverage, protection in international waters and much more.

We offer various types of marine cargo insurance plans to meet your requirements. Lastly, all our plans are affordable and ensure your goods are adequately protected at all times in transit.

-What are some other Incoterms used in the marine business?

Some other incoterms used in marine business are:

FAS- Free Alongside Ship

CFR- Cost and Freight

CIF- Cost, Insurance, Freight

CPT- Carriage Paid To Shipment

CIP- Carriage and Insurance Paid

-What is the difference between CIF and FOB?

Under FOB, the liability is transferred from the seller to the buyer when the shipment reaches the port of origin. However, under Cost, Insurance and Freight (CIF), the seller assumes the liability and pays the costs till the goods reach the destination port chosen by the buyer.