FOB (Free On Board)

Definition

FOB (Free On Board) is a transportation term used in shipping and logistics, signifying that the seller is responsible for delivering the goods to a specified point, usually the seller’s location or a specific shipping dock. Beyond this point, all costs and responsibility for the goods fall upon the buyer. The term is used in sales and shipping contracts to outline the responsibility and liability for shipping costs and goods during transit.

Examples

FOB Newark Warehouse: If the sale term is “FOB our Newark warehouse,” the seller is responsible for shipping the goods to their warehouse in Newark. The buyer must then cover the costs and manage the logistics from that point onward, including all shipping and delivery charges to their final destination.
FOB Origin: Sometimes called “FOB Shipping Point,” in this instance, the buyer assumes responsibility once the goods leave the seller’s premises. This means the cost and risk are transferred to the buyer at the seller’s shipping dock.
FOB Destination: Here, the seller bears all charges and risks until the goods reach the buyer’s specified location. The title and responsibility transfer upon delivery to the buyer.

Frequently Asked Questions (FAQs)

What does FOB indicate in shipping terms?

FOB specifies at which point the responsibility and costs associated with shipping goods transfer from the seller to the buyer.

How is FOB different from CIF (Cost, Insurance, and Freight)?

Unlike FOB, CIF includes the cost of the goods, insurance, and freight charges. The seller is responsible for these costs until the goods reach the port of destination.

Is Title Transfer Immediate Under FOB Terms?

The title typically transfers from the seller to the buyer at the FOB point, as evidenced by the bill of lading.

What additional charges must a buyer consider if the term is FOB?

The buyer must consider all shipping, insurance, and any other charges related to transporting the goods from the FOB point to the final destination.

How does FOB affect the invoice?

The invoice under FOB terms would reflect the delivery of goods to the specified FOB point, with no additional shipping and handling beyond that point covered by the seller.

Invoice: A document issued by a seller to a buyer, indicating the quantities, prices, and total due for products or services provided.
Bill of Lading: A legal document between the shipper and the carrier detailing the type, quantity, and destination of the goods being shipped. It serves as a receipt of shipment when the goods are delivered.
Free Alongside Ship (FAS): A term used to describe that the seller must deliver the goods to a port alongside a ship designated by the buyer. From this point, all further costs and risks are assumed by the buyer.

Online References

Suggested Books for Further Studies

“Incoterms® 2020 by the International Chamber of Commerce (ICC)”
- Offers comprehensive explanations of terms used in international trade.
“Global Logistics and Supply Chain Management” by John Mangan and Chandra Lalwani
- A critical resource for understanding the global logistics and intricacies of supply chain management.
“International Trade and Carriage of Goods” by Baris Soyer and Andrew Tettenborn
- In-depth analysis of international trade laws and the carriage of goods.

Fundamentals of FOB: Transportation Basics Quiz

### Under FOB terms, at what point does the title transfer from seller to buyer? - [x] At the specified FOB point. - [ ] When the goods reach the buyer's warehouse. - [ ] At the port of departure. - [ ] Upon receipt of payment. > **Explanation:** The title typically transfers from the seller to the buyer at the designated FOB point, which can be identified through the bill of lading. ### If the term is FOB Origin, who is responsible for shipping costs after the goods leave the seller's premises? - [ ] The seller - [x] The buyer - [ ] The carrier - [ ] Both the seller and buyer > **Explanation:** Under FOB Origin terms, the buyer is responsible for all shipping costs and risks once the goods leave the seller's premises. ### With FOB Destination, who handles the insurance of the goods during transit? - [ ] The buyer - [x] The seller - [ ] The carrier - [ ] Third-party insurers > **Explanation:** Under FOB Destination terms, the seller is responsible for insurance and all transit-related risks until the goods reach the buyer's location. ### Which term means that the seller must deliver goods alongside a ship designated by the buyer? - [ ] FOB Destination - [x] Free Alongside Ship (FAS) - [ ] CIF - [ ] FOB Shipping Point > **Explanation:** Free Alongside Ship (FAS) means the seller is responsible for delivering goods to a port alongside a ship chosen by the buyer; beyond this, the buyer takes over costs and risks. ### When the price includes all shipping and handling costs up to the buyer's location, which term is used? - [ ] FOB Origin - [x] FOB Destination - [ ] CIF - [ ] FAS > **Explanation:** FOB Destination means the seller includes all shipping and handling costs until the goods arrive at the buyer's specified location. ### In FOB terms, what does the invoice typically reflect? - [x] Delivery of goods to the specified FOB point. - [ ] Delivery of goods to the buyer's location. - [ ] Only the cost of goods without any shipping details. - [ ] Future deliveries yet to be made. > **Explanation:** The invoice typically reflects the delivery of goods to the designated FOB point as agreed in the shipping terms. ### Under which condition does the buyer assume responsibility for goods in transit? - [ ] FOB Destination - [x] FOB Origin - [ ] CIF - [ ] FAS > **Explanation:** Under FOB Origin terms, the buyer assumes responsibility for the goods once they leave the seller's premises. ### How is FOB different from CIF regarding the seller's liability? - [ ] FOB includes liability for insurance; CIF does not. - [ ] FOB implicates the buyer for all loading costs; CIF does not. - [x] FOB transfers responsibility at the departure; CIF covers up to the destination port. - [ ] There is no difference in liability. > **Explanation:** FOB transfers responsibility to the buyer at the departure point, while CIF means the seller's liabilities include cost, insurance, and freight until the goods reach the destination port. ### Who utilizes a bill of lading during the shipping process? - [ ] Only the seller - [ ] Only the buyer - [x] Both the seller and carrier - [ ] Neither party > **Explanation:** The bill of lading serves as a legal document between the shipper (seller) and the carrier, documenting the type and quantity of goods being transported. ### Is the term FOB applicable only for seaborne shipments? - [ ] Yes, exclusively for seaborne - [x] No, it applies to various shipping methods - [ ] Only for air shipments - [ ] Only applicable for truck transport > **Explanation:** FOB can be applied to various shipping methods, not strictly limited to seaborne shipments.

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