FOB stands for “free on board” or “freight on board” and means that liability and ownership of goods are transferred from a seller to a buyer. FOB is a shipment term, “FOB shipping point” or “FOB origin,” which means the buyer takes ownership of goods and takes responsibility for the shipment.
If we look back in history, the term ‘FOB’ was used for the goods transported by ship.
There must be a proper record of the shipment at the time of its sale and departure from the shipping point.
This article covers the following:
- What’s the Difference Between FOB Shipping Point and FOB Destination?
- What is FOB pricing?
- Who pays freight on FOB origin?
- What is the difference between FOB and CIF?
What’s the Difference Between FOB Shipping Point and FOB Destination?
According to the term “FOB origin,” the buyer gains ownership of the goods once they pay the shipping cost. The term “FOB destination” means the seller is at risk until the buyer receives the goods sold.
What Is FOB Pricing?
The FOB pricing depends on the following:
- Transportation of the goods to the shipment port or shipping dock
- Loading the shipping vessel with goods
- Transportation of Freight
- Additional freight charges
- Custom fees
- Insurance costs
- Unloading and transporting the goods from the arrival port to the final destination.
Who Pays Freight on FOB Origin?
As per business accounting, responsibility for freight charges includes the terms “FOB origin, freight collect” or “FOB Origin, freight prepaid.” If the term “FOB origin, freight collect” is used, the buyer will control the shipment and be responsible for the freight costs. If the term “FOB Origin, freight prepaid” is used, it means the buyer of goods will take responsibility for goods at the point of origin, and the seller pays the cost of shipping.
What Is the Difference Between FOB and CIF?
CIF refers to the ‘Cost, Insurance and Freight’, and FOB refers to the ‘Free on Board.’ Both terms have their own uses in shipping companies of different countries. These terms basically highlight the relationship between buyer and seller for the shipment of goods (freight transport). These are widely used terms for vendor-client transactions. The FOB transfers liability from the seller to the buyer on the arrival of the shipment to the port of shipment or other final destination. CIF is an agreement saying that the seller will pay the charges until the goods reach the port of the final destination chosen by the buyer.
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