This is a very necessary distinction in that it determines succinctly which party is responsible and liable for any lost or damaged goods during the shipping at any given time. The major difference between the two terms is the timing of the transfer. On the other fob shipping point hand, in the case of FOB destination, it is the seller who will have the liability in case of damage or loss of goods before they reach the port of destination or buyer’s location. In such a case, the seller will have to provide the buyer with a new shipment.

Unlike FOB shipping, the supplier is not required to ensure the safe movement from port to ship. In some cases, the goods also have to be transported to the buyer’s location . Furthermore, there are extra costs, such as paying for customs clearance and other inspections or certifications. Every parcel shipped from one country to another has to clear customs. It doesn’t matter what you are shipping – shoes, candy, couches, refrigerators, you name it.

FOB Terms: FOB Origin, Freight Prepaid

When a shipment is designated FOB shipping point, it means that ownership of the goods transfers to the buyer immediately after the goods are loaded onto the vessel at the shipping point. Just as these shipping terms are detailed, so are shipping invoices. Shipware can help you audit your freight invoices to ensure that you’re not overpaying, and you’re getting the service promised to you. Contact Shipware for more details on how we can help save you money with our parcel audit software and other solutions for logistics optimization. Cost, insurance, and freight is a method of exporting goods where the seller pays expenses until the product is completely loaded on a ship.

Under the Incoterms 2020 standard published by the International Chamber of Commerce, FOB is only used in sea freight and stands for “Free On Board”. The term free on board simply refers to freight that is being shipped over water instead of land or air. About 90 percent of all global freight is shipped via ocean and sea freight. It’s important for the moment of sale to be accurately recorded for this reason, and also for entry into the company records. Transfer of ownership occurs when the goods have been delivered to the buyer . FOB shipping point is usually paid for by the buyer, while FOB destination is usually paid for by the seller.

What’s the Difference Between FOB Shipping Point and FOB Destination?

FOB shipping stands for free on board which in some cases is referred to as Freight on board. Well, this is a set of Incoterms that tend to govern the party that owns as well as pays for shipments to overseas. In that case, FOB shipping point stand for a designation that is used to indicate when the ownership and liability of goods are transferred from the seller to the buyer. FOB also determines when a business will record a sale for accounting purposes. If a shipment is designated as FOB Shipping Point, the sale will be recorded in the accounting system as soon as the shipment leaves the seller’s dock. At the same time, the buyer will record in its accounting system that inventory is on route. That inventory then becomes an asset in the buyer’s accounting books even though the shipment hasn’t yet arrived.

Use of the term “Freight On Board” in contracts is therefore very likely to cause confusion. The phrase passing the ship’s rail is no longer in use, having been dropped from the FOB Incoterm in the 2010 https://www.bookstime.com/ revision. To help facilitate these contracts and to set clear terms and conditions between the parties, the International Chamber of Commerce has published a list of International Commercial Terms .

FOB Destination (Free on Board) Video

They are categorized as current assets on the balance sheet as the payments expected within a year. The FOB destination point is to transfer the title of the goods to the buyer from the seller as soon these arrive at the buyer’s location. The Free onboard destination is where the ownership changes hands from the seller to the buyer, and thus, the actual sale of goods occurs.