What is FOB Destination? (2024)

FAQs

What is FOB Destination? ›

FOB (Freight on Board) Destination is a shipping term which means that the seller retains the legal title to the goods until they reach the location of the buyer. In this case, the seller pays for the transportation of the freight and takes care of additional freight charges until the goods reach the buyer.

FOB shipping point is usually paid for by the buyer, while FOB destination is usually paid for by the seller.

FOB Origin means the buyer assumes all risk once the seller ships the product. FOB Destination means the seller retains the risk of loss until the goods reach the buyer.

As an example, U.S. Company A buys watches from Vietnam and signs a FOB Newark agreement. The shipment is sent to Newark, New Jersey, and the watches are damaged in transit. The seller is responsible and either must deliver new watches or reimburse Company A if they've already purchased the products.

FOB is a shipping term that stands for “free on board.” If a shipment is designated FOB (the seller's location), then as soon as the shipment of goods leaves the seller's warehouse, the seller records the sale as complete.

FOB destination point refers to a product sold to a customer after it arrives at the buyer's destination. In contrast to the FOB shipping point, the seller may bear the risk of loss and responsibility for transportation expenses while the goods are in transit.

With FOB Destination, the seller is responsible for transporting goods from the origin point to the shipping point. They are also responsible for loading the cargo onto the vessel and paying the costs of shipping the freight to the buyer's named port.

The FOB destination outlines terms indicating that the seller will incur the delivery expense to get the goods to the destination. This means that goods in transit should be reported as inventory by the seller since technically the sale doesn't occur until the goods reach the destination.

📌 Note: The terms 'FOB shipping point' or 'FOB origin' indicate the opposite of 'FOB Destination, freight collect / freight prepaid' — the buyer is responsible for the freight charges.

FOB ORIGIN • The Buyer assumes title and control of the goods the moment the carrier signs the bill of lading. The Buyer assumes risk of transportation and is entitled to route the shipment. The Buyer is responsible for filing claims for loss or damage.

What are the disadvantages of FOB destination? ›

Disadvantages of FOB Destination include less control over shipping for the buyer, as the seller determines shipping methods and carriers. In this case, the seller also assumes more risk, and buyers may experience longer transit times, especially in international trade.

In FOB shipping points, if the terms include "FOB origin, freight collect," the buyer pays for freight costs. If the terms include "FOB origin, freight prepaid," the buyer is responsible for the goods at the point of origin, but the seller pays the transportation costs.

Under FOB destination terms, the buyer takes ownership of the goods at its own receiving dock. This means that the seller should record a sale at this point.

For instance, when European automakers ship cars to the U.S., using FOB origin means their responsibility ends as soon as those cars are onboard. FOB Destination: Responsibility shifts from the seller to the buyer when the goods reach their destination.

FOB stands for “free on board” or “freight on board” and is a designation that is used to indicate when liability and ownership of goods is transferred from a seller to a buyer.

The word “fob” was likely derived from the German fuppe, meaning “pocket.” Before key fobs were an electronic device, they were another word for decorative keychains throughout the 20th century.

FOB Origin, Freight Collect: The buyer pays for freight and shipping costs and assumes full responsibility for the cargo. FOB Origin, Freight Prepaid, & Charged Back: The seller does not pay the cost of shipping, but instead adds the freight costs to the invoice sent to the buyer.

Under FOB contracts, the buyer is responsible for shipping and other costs, as well as insurance as soon as the goods are loaded onto the vessel and during the voyage. FOB contracts are generally more cost-effective because buyers have more control over shipping and insurance.

Buyers must clearly specify the destination address to ensure the goods are delivered accurately and on time. Unloading goods upon arrival. Once the shipment arrives at the designated location, buyers are responsible for unloading the goods. Paying any costs related to unloading.

In a FOB shipping point contract, the seller transfers any title of ownership to the buyer upon the product leaving the seller's location. The buyer then has full ownership. In a FOB destination sale contract, the buyer may not receive the title of ownership until the product reaches the buyer's location.