What is the significance of FOB Shipping Point and FOB Destination?

Discover what LTL shipping is and why you should use it to transport all your business products. Understanding factors that determine freight rates for LTL shipments helps you avoid unexpected costs. 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. DDP also requires sellers to transport goods to the final location and pay for any relevant import customs formalities. With shipping being the final step in completing a sale, it is often the last thing thought about by both buyers and sellers.

As a small business owner, you want to make your own decisions, and with fob shipping point, it’s a matter of finding the right balance between reward and risk. It is in the buyer’s best interest to have the shipping terms be stated as FOB (the buyer’s location), or FOB Destination.

In Accounting

The amount of inventory and cost of goods on the books changes as well, depending on where the goods are and the FOB status. And of course, accepting liability for goods adds to the profits and losses, if there is damage during transit. Understanding the terminology and understanding when you’re accepting liability and ownership, is imperative.

Though in line with the accounting treatment mentioned above, it is worth explicitly calling out that https://www.bookstime.com/ and FOB destination transfer ownership at different times. In an FOB shipping point agreement, ownership is transferred from the seller to the buyer once goods have been delivered to the point of origin. Once at this shipping point, the buyer is the owner of the goods and at risk during transit. As stated before, an FOB shipping point sale transfers liability to the buyer the moment a shipment leaves the warehouse upon being safely shipped.

FOB Pricing: What is the Difference Between FOB and other ocean shipping incoterms?

In addition to this, FOB is advantageous to the seller as they are not responsible for arranging the marine transportation or any insurance. The seller can also consider the sale completed once the cargo has been loaded onto the shipping vessel. Fob Destination, Freight Collect – The buyer pays all freight charges but does not take responsibility until the cargo gets to the destination port. The term “freight on board” originated from the days of sailing ships when goods were “passed over the rail by hand,” as defined in Incoterm. The term “FOB” was used to refer to goods transported by ship since sea transport was the main method of transporting cargo from far countries.