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. The expansion of the global market and the rise of e-commerce has led to some interesting challenges for international shippers. As logic would denote, the further away you’re shipping your freight, the more complicated the process becomes.

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. With FOB shipping point, the buyer pays for shipping costs, in addition to any damage during shipping. The buyer is the one who would file a claim for damages if needed, as the buyer holds the title and ownership of the goods.

FOB (shipping)

This means that the shipment will be delivered to your point of destination without any additional fees as the seller covers taxes and/or import duty. The FOB destination is often used in fob shipping point international sales contracts but can also be used to be more specific about when or where the seller must deliver. Freight shipping has been a fundamental part of the global economy.

Cost, Insurance, Freight puts the liability of payment for – you guessed it – cost, insurance, and freight on the supplier. Once the delivery is unloaded in the receiving country, responsibility is transferred to you. An FOB shipping point agreement is signed and the container is handed off to the freight carrier at the shipping https://www.bookstime.com/ point. Upon delivery of the goods to the destination, the title for the goods transfers from the supplier to the buyer. With FOB shipping point, ownership of goods is transferred to the buyer once they leave the supplier’s shipping point. You purchase goods from a supplier in China and agree to FOB shipping terms.

Who Retains Risk in FOB Shipping Point?

Furthermore, there are extra costs, such as paying for customs clearance and other inspections or certifications. Every parcel shipped from one country to another has to clear customs. It doesn’t matter what you are shipping – shoes, candy, couches, refrigerators, you name it. If you are a seller using FOB destination and you are shipping using a third-party carrier such as US Postal Service or UPS, consider getting insurance on any expensive goods that you ship. The buyer is responsible for any pre-shipment inspection, except when it is ordered by the country of export’s administration. The buyer provides the seller with adequate notice of the vessel’s name, the loading point, and the required delivery time.

Since the buyer takes possession of the items at its receiving dock, that is also where the seller should document a transaction. The International Chamber of Commerce publishes 11 Incoterms that outline the roles of both sellers and purchasers in global shipments.