What is FOB Shipping Point? Definition Meaning Example

Due to agreed FOB shipping point terms, they’ll have no recourse to ask the seller for reimbursement. Assume a fitness equipment manufacturer receives an order for 20 treadmills from a newly opened gym located across the country. The articles and research support materials available on this site are educational and are not intended to be investment or tax advice. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. FOB is important because it has shipping, liability, and accounting implications. Such disagreements, especially when goods are in transit or have already been delivered, can be both financially and operationally taxing.

Cost Savings for Buyers/Sellers

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 fob shipping point 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. 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.

What are EXW or FOB Unit Prices?

Whether the buyer or seller pays for shipping, they will also have to enter those transportation costs in their account ledger. These freight costs can include the labor needed to handle and load the goods at the shipping dock, the cost of transporting them to the vessel, shipping, and insurance. Other items include who pays the costs of freight and insurance considerations. The International Chamber of Commerce (ICC) publishes the standards for the most commonly used delivery contracts. Imagine the same situation above, except the agreement terms are for FOB destination. Instead, the manufacturer retains ownership of the equipment until it’s delivered to the buyer.

Risks and Disadvantages of FOB Destination

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• “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 during transport.
• He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.
• FOB is important because it has shipping, liability, and accounting implications.
• If anything happens to the goods in transit, the buyer is responsible for them—not the seller.
• Free on board (FOB), sometimes known as “freight on board,” is a common agreement for international shipping.
• FOB terms are typically included in shipping orders and contracts, detailing the time and place of delivery, payment terms, and which party handles freight costs and insurance.

Ideally, the seller pays the freight charges to a major port or other shipping destination and the buyer pays the transport costs from the warehouse to his store or vendors. Many times, sellers will invoice buyers for the cost of shipping and insurance, adding extra fees to increase their profit. Even so, buyers sometimes prefer CIF contracts because of the convenience of not dealing with any risks, claims, or freight issues while the goods are transported.

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• With a CIF agreement, the seller pays costs and assumes liability until the goods reach the port of destination chosen by the buyer.
• As the goods were sold FOB shipping point, the seller does not have to pay the freight cost.
• Upgrading to a paid membership gives you access to our extensive collection of plug-and-play Templates designed to power your performance—as well as CFI’s full course catalog and accredited Certification Programs.
• You’ll often be quoted a lower price for FOB since the shipping requires you, not the seller, to handle more legwork.

Is FOB Destination Better for a Buyer?

What is FOB destination?