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Overview and Differences between FOB Shipping Point and FOB Destination

In international trade, FOB (Free On Board) is a common trade term used to determine the respective responsibilities and costs of the buyer and seller during the transportation process. There are two common forms of FOB: FOB shipping point and FOB destination. This article will introduce the concepts, advantages, disadvantages and differences of these two FOB terms in detail.

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What is FOB Shipping Point?

FOB Shipping Point means that the ownership and risk of the goods are transferred from the seller to the buyer when the goods are at the shipping point (usually the seller’s factory or warehouse). The seller is responsible for loading the goods onto the means of transport (such as a ship, truck or train), and the risks and costs of transportation thereafter are borne by the buyer.

What is FOB Shipping Point?

Advantages of FOB Shipping Point

  • Reduced seller responsibility: The seller is fully responsible after the goods are shipped, and is not responsible for the risks and costs during transportation.
  • Cost control: The buyer can choose his own transportation method and carrier to control transportation costs.
  • Simplified process: The seller does not need to deal with complex international transportation and customs clearance procedures.

Disadvantages of FOB Shipping Point

  • Increased buyer risk: After the goods are shipped, the buyer is responsible for all risks during transportation, including damage, loss, etc.
  • Complex logistics management: The buyer needs to manage the international logistics and customs clearance process by himself, which increases the difficulty of operation.

What is FOB Destination?

FOB Destination means that the ownership and risk of the goods are transferred from the seller to the buyer when the goods arrive at the destination (usually the buyer’s warehouse or designated location). The seller is responsible for all costs and risks during transportation until the goods are safely delivered to the buyer.

What is FOB Shipping Point?

Advantages of FOB Destination

  • Reduced buyer’s responsibility: The buyer does not need to bear the transportation risk before the goods arrive, which reduces the difficulty and risk of operation.
  • Transportation guarantee: The seller is responsible for the transportation process and usually chooses a reliable carrier to ensure the safety of the goods.
  • Simplified procurement process: The buyer does not need to deal with international transportation and customs clearance processes, just wait for the goods to arrive.

Disadvantages of FOB Destination

  • Increased seller’s responsibility: The seller needs to bear all risks and costs during transportation, which increases responsibility and cost.
  • Cost opacity: The buyer has weak control over transportation costs, which may lead to an increase in total procurement costs.
  • Complex process: The seller needs to deal with complex international logistics and customs clearance procedures, which increases the difficulty of operation.

Difference between FOB Shipping Point vs FOB Destination

The fundamental difference between FOB Shipping Point and FOB Destination is who owns the goods in transit and who pays and manages the transportation costs and risks.
Under FOB Shipping Point, the buyer assumes ownership, costs and risks once the goods leave the seller’s location.
In contrast, under FOB Destination, the seller retains ownership and responsibility until the goods arrive at the buyer’s designated location.

Risk Transfer Point
FOB Shipping Point: Risk transfers from the seller to the buyer at the shipping point.
FOB Destination: Risk transfers from the seller to the buyer at the destination.

Costs
FOB Shipping Point: The seller bears the shipping costs and the buyer bears the transportation costs and risks.
FOB Destination: The seller bears the transportation costs and risks and the buyer bears the costs and risks once the goods arrive at the destination.

Scope of Liability
FOB Shipping Point: The seller’s liability is limited to loading the goods onto the means of transport.
FOB Destination: The seller’s liability covers the entire transportation process until the goods are safely delivered to the buyer.

Example

Suppose a US company buys a batch of electronic products from a Chinese supplier, and the contract terms are FOB shipping point and FOB destination:

  • FOB shipping point: The title and risk are transferred to the US company when the goods are loaded on board at the Chinese port. The US company is responsible for arranging international transportation and bearing the corresponding costs and risks.
  • FOB destination: The title and risk are transferred to the US company when the goods arrive at the US company’s warehouse. The Chinese supplier is responsible for arranging and paying for transportation and ensuring safe delivery of the goods.

Learn more: What Is The Difference Between FCA And FOB

Some common questions about FOB

Who pays for the freight at FOB shipping point?

In an FOB shipping point agreement, the seller pays all transportation costs and fees to get the goods to the port of origin. Once the goods arrive at the origin and are loaded onto the shipping vessel, the buyer will be responsible for the costs of transporting the goods, such as duties, taxes, and fees.

Who bears the risk at FOB shipping point?

The seller bears the risk before the goods arrive at the shipping location. The buyer bears the risk after the goods are shipped. If the goods are damaged in transit, the loss is borne by the buyer.

Is FOB destination better for buyers?

FOB destination is more advantageous for buyers. Buyers are not responsible for the goods in transit; therefore, buyers are not usually responsible for paying freight. Buyers can also defer ownership until the goods are delivered to them, allowing them to conduct an initial inspection to record any damage or problems before actually accepting the goods.

Does FOB mean free shipping?

FOB stands for “free on board” or “freight on board.” This term is used to designate the ownership of the goods between the buyer and the seller during the transportation of the goods. FOB does not explicitly mean that the goods are transported free of charge.

Summary

FOB shipping point and FOB destination are two common trade terms, each with its own advantages and disadvantages. Buyers and sellers should choose the appropriate terms according to their own needs and capabilities. FOB shipping point is suitable for buyers who are capable of managing international logistics, while FOB destination is suitable for buyers who want to simplify the process and reduce risks. When choosing, both parties should clarify the content of the terms and the division of responsibilities to avoid subsequent disputes.

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