What Importers Ought To Know About FOB Meaning In Shipping
FOB is a popular term used in international trade that stands for Free On Board or Freight On Board. It significantly affects the buyer and seller of goods in a transaction, mainly when it involves international trade. The term is primarily used in shipping contracts and involves the transportation of goods from one point to another.
An FOB agreement is a legal contract that specifies where the responsibility of the goods' ownership, risk, and cost transition from the seller to the buyer. The term 'Free On Board' refers to the point where the seller releases ownership of the goods to the buyer. In this agreement, it is the point where the shipper delivers the goods to the shipping carrier for transport. From that point, the buyer assumes all the risks, including loss, theft, and damage while the goods are in transit until it reaches their final destination.
FOB term is a critical aspect of international trade contracts as it affects the overall cost of goods. The seller's job is to deliver the goods to the shipping port and hand over the goods to the shipping company. The buyer then takes care of the transportation and insurance costs. This is why it is essential to establish a proper understanding of FOB before entering into an international trade agreement.
There are two types of FOB agreements- FOB Origin and FOB Destination.
In FOB Origin, the buyer assumes ownership and responsibility of the goods from the moment the goods leave the seller's warehouse. On the other hand, FOB Destination requires the seller to bear the ownership and risk of the goods until it reaches the buyer's warehouse.
Apart from shipping, FOB can also be used in other industries such as aerospace and automotive manufacturing. For example, the delivery of an airplane engine to an aircraft manufacturing unit is considered FOB Origin. This means that the ownership of the engine is transferred to the buyer when it is loaded on the transport truck. Similarly, FOB Destination applies to the delivery of car parts to the assembly line.
In conclusion, FOB is a crucial term in international trade and shipping contracts that determines the cost and responsibility of goods transit from one point to another. It is essential to ensure that both the buyer and seller understand the terms and conditions of each FOB agreement before entering into any transaction. Overall, FOB is an integral component of international trade and helps in the smooth transit of goods from the seller to the buyer.