What is FOB Shipping Point?
FOB is a shipping term that stands for “free on board.” If a shipment is designated FOB (the seller’s location), then as soon as the delivery of goods leaves the seller’s barn, the seller records the sale as complete. Consequently, the buyer has to state an increase in inventory and cover the costs of shipping to their facility.
That also means that if a pallet of jewelry is lost or damaged in shipment, the buyer must file any claims for compensation – not the seller – since the purchase became the buyer’s responsibility directly.
It is in the buyer’s best interest to have the shipping terms be stated as FOB (the buyer’s location), or FOB Destination. So if the buyer is headquartered in New York, the terms would read “FOB New York.” And only when the purchased shipment arrives in perfect condition does the buyer accept it and consider the items listed in its system. The sale is formally complete at that point.
Picture 1. Free on board shipping
Other Shipping Terms
While FOB is the most commonly-used shipping point, others include:
- FAS. Free Alongside, which means that the seller must deliver goods on a ship that pulls up next to a boat of a specific name, close enough that the ship can use its lifting devices to bring it onboard.
- FCA. Free Carrier, which symbolizes that the seller is obligated to deliver goods to the railway terminal, shipping port, or on the airport where the buyer has an operation and can take delivery there.
- DES. Delivered Ex Ship, which requires the seller to deliver products to a particular shipping port, where the buyer will take delivery on arrival.
- EXW. Ex Works, which only requires the retailer to get products ready to be shipped from its location. The buyer is responsible for making any settlements for the shipment and for picking the goods up. This is very helpful for the seller.
- CPT – Carriage Paid To, which means that the seller pays for the carriage of goods to the designated place of destination.
As a buyer who is negotiating with a seller who is a long distance from your operation, it is generally in your best interest to have the seller to be responsible for delivering your purchase (shipment) as close to your business as possible. Conversely, when you are selling to an overseas buyer, it is in your best interest for the buyer to become responsible as soon as it leaves your charging dock.
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