Today I shall be discussing with you a very important subject matter that affects us all as an exporter; be it mini exporter or major exporter – FOB. It is true that the meaning of FOB as no special meaning but the understanding and interpretation of this often used word (FOB) is very important. For those who forget things easily like myself; FOB simply mean FREE ON BOARD!!! Some people simply refer to it as transportation of goods from one country to the other. However, we are going to go a step further today explaining what exactly is FOB with real live example.
Although this term is widely used in the shipping industry; that is why it is important to discuss its vital implications on your inventory. There are basically two types of FOB freights which are:
- FOB Shipping Point/FOB Origin
- FOB Destination
1. FOB Shipping Point/FOB Origin simply means that the freight (transportation) costs are the responsibility of the BUYER. In other word the BUYER is responsible for the transportation costs of the goods from the SELLER’S Point/Origin. When an item is FOB Origin, the buyer takes responsibility of both the shipping costs as well as the ownership of the material as soon as the item leaves the shipper’s dock/the seller’s place of business.
2. FOB Destination, this simply means that the shipper is responsible for the freight/shipping costs and also ensures that the goods arrive to it’s destination safely and satisfactorily. In other word, this simply means; I the SELLER will be responsible for the goods until it gets to the BUYER’S custody. Only when can the Buyer/Recipient accepts delivery of the items. However, it is good to know that FOB Destination protects the buyer from the risk of loss, damage, or theft during transit.
If the goods are to be transport by FOB destination; it means that I will pay the shipping costs to get that goods across to China. The buyer as nothing to loose in this type of FOB as he only owns the goods upon arrival. By this; the China buyer will only be responsible for goods that gets to China else it is a lose on my part.
However, if the transportation of the goods is FOB Shipping Point/Origin; it means that the buyer from China will pay $550. The actual price of the goods plus the shipping costs to get the goods to his country. Immediately the goods get to my shipping port lets say Apapa; the ownership of the goods changed from Me to Him. Therefore, he will be responsible for anything that happens to the goods while on transit. this is not always safe for the buyers.
Differences Between FOB Shipping Point/Origin And FOB Destination
FOB Shipping Point/Origin
- Ownership changes when the goods leave the SELLER’S place of office.
- The BUYER owns the goods while in transit
- The BUYER pays for the transportation costs
- The ownership changes only when the goods arrive at the BUYER’S dock.
- SELLER owns the goods while in transit. So, if anything happens to the goods while still on the road; the seller alone bears responsibility.
- SELLER pays transportation costs