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From that point, buyers need to take care of the transportation and other costs like taxes during the delivery. On the day your cargo is scheduled to leave, the seller’s warehouse and your logistics company will arrange a truck to collect it. Be sure to ask your forwarder if they can communicate with the supplier or prefer you to organize all communication. In contrast, we recognize that having our team in China means we can better coordinate directly with suppliers and be prepared to react in the event of any delays or issues before the shipping day. If you are shipping a full container load (FCL), the truck will carry the container to the seller’s warehouse, and the seller will load the cargo directly into the container. The other portion of the FOB designation sets out how the freight costs are paid in the transaction.
The buyer takes responsibility for the transport cost and liability during transportation. “FOB Destination” means that the transfer completes at the buyer’s store and the seller is responsible for all of the freight costs and liability Accounting Services and Bookkeeping Services For Your Business during transport. When items are sold “FOB destination,” the title to the commodities may not pass to the buyer until the items are delivered to the buyer’s loading dock, post office box, residence, or place of business.
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These terms help buyers and sellers specifically set out who they intend to bear the risk of shipping when they enter an agreement. The FOB shipping point or place of origin is where the products are shipped and start their movement toward their final destination. In the early https://adprun.net/bookkeeping-for-independent-contractors-a-guide/ days, whatever port they were leaving from — today, that can be wherever the transfer process starts. With a CIF agreement, the seller agrees to pay the transportation fees, which include insurance and other accessorial fees, until the cargo is transferred to the buyer.
Free on Board (FOB) is a shipment term that defines the point in the supply chain when a buyer or seller assumes responsibility for the goods being transported. FOB terms like FOB Origin and FOB Destination help define ownership, risk, and transportation costs for both buyers and sellers. Company A buys watches from Vietnam and signs a FOB shipping point agreement. The cargo arrives at the receiving dock and the buyer takes ownership and liability. The buyer is responsible, even though the watches were damaged before arriving on U.S. soil. FOB origin, or shipping point, means that the buyer will receive the title for the goods they purchased when shipment begins.
Who pays the freight on FOB shipments?
However, the buyer subtracts the shipping charges from the supplier’s bill rather than footing the bill out of pocket. In this arrangement the vendor still owns the items while they are in transit. How effective products move from the vendor to the customer depends on how well both sides understand free on board (FOB). FOB conditions may affect inventory, shipping, and insurance expenses, regardless of whether the transfer of products happens domestically or internationally. The buyer and seller’s bill of sale or other agreement determines ownership; FOB status only indicates which party is responsible for the cargo from beginning to end. For FOB origin, after the goods are placed with a carrier for transport, the company records an increase in its inventory and the seller records the sale at the same time.
- That inventory is now an asset on the buyer’s books, even though the shipment has not arrived yet.
- Once the cargo leaves the seller’s warehouse, the buyer is in possession of the load, and can better control the successful outcome of their shipment.
- In international trade, ownership of the cargo is defined by the contract of sale and the bill of lading or waybill.
- The point of FOB destination is to transfer the title to the goods to the buyer as soon as they’ve arrived at the buyer’s location.
- Therefore, companies should carefully choose the best FOB for them and clarify the type of FOB used so the risks and liabilities are concise for a smooth shipment process.