free on board
adj. & adv. (Abbr. FOB)
Without charge to the purchaser for delivery on board or into a carrier at a specified point or location.
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Without charge to the purchaser for delivery on board or into a carrier at a specified point or location.
A trade term requiring the seller to deliver goods on board a vessel designated by the buyer. The seller fulfills its obligations to deliver when the goods have passed over the ship's rail.
When used in trade terms, the word "free" means the seller has an obligation to deliver goods to a named place for transfer to a carrier.
Investopedia Says:
Contracts involving international transportation often contain abbreviated trade terms that describe matters such as the time and place of delivery and payment, when the risk of loss shifts from the seller to the buyer, as well as who pays the costs of freight and insurance.
The most commonly known trade terms are Incoterms, which are published by the International Chamber of Commerce. These are often identical in form to domestic terms, such as the American Uniform Commercial Code, but have different meanings. As a result, parties to a contract must expressly indicate the governing law of their terms.
It's important to realize that because this is a legal term, its exact definition is much more complicated and differs by country. It is suggested that you contact an international trade lawyer before using any trade term.
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Term indicating delivery will be made on board or into a carrier by the shipper without charge. The abbreviation FOB is followed by a shipping point or destination. The invoice price includes delivery at seller's expense and seller's risk to the specified location. For example, "FOB our warehouse in Duluth, Minnesota," means to a buyer requesting New York City delivery that the seller who might have its headquarters and billing office in Chicago, will pay shipping costs from Duluth to New York. Title usually passes from seller to buyer at the FOB point.
An abbreviation for free on board, which means that a vendor or consignor will deliver goods on a railroad car, truck, vessel, or other conveyance without any expense to the purchaser or consignee.
FOB, an abbreviation for either Free On Board or Freight on Board, is a term commonly used when shipping goods, to indicate who pays loading and transportation costs, and/or the point at which the responsibility and ownership of the goods transfers from shipper to buyer. The precise meaning of the term FOB varies.
Under the Incoterm standard, FOB stands for "Free On Board". Indicating "FOB" means that the seller pays for transportation of the goods to the port of shipment, plus loading costs. The buyer pays freight, insurance, unloading costs and transportation from the arrival port to the final destination. The passing of risks occurs when the goods pass the ship's rail at the port of shipment. Internationally the term specifies the port of loading, e.g., "FOB New York" or "FOB Vancouver."
Domestically within the United States and Canada, "FOB" is sometimes still used as per the long-discontinued "Foreign Trade Definitions" of 1941, with at least four different precise meanings.
The term is used in two common phrases, "FOB shipping point" and "FOB destination," to distinguish when the title of goods passes from the seller to the buyer. Under the terms of "FOB shipping point," the title of the goods passes to the buyer at the shipping point. Similarly, under the terms of "FOB destination", the title of the goods passes to the buyer when the goods arrive at their destination. The distinction is important because it determines who pays for the shipping costs of the merchandise: whoever holds the title to the merchandise at the time of its shipping pays for its transportation costs unless otherwise noted (e.g., freight prepaid or freight collect). Also, it is important that if the shipment is damaged while traveling the owner must file the freight claim.
Note that this usage is inconsistent with the official Incoterm definitions. North American FOB definitions correspond to Incoterm approximately as follows:
| North America | Incoterm |
|---|---|
| FOB shipping point or FOB shipping point, freight collect | FCA shipping point |
| FOB shipping point, freight prepaid | CPT destination |
| FOB destination or FOB destination, freight prepaid | DDU destination |
| FOB destination, freight collect | No Incoterm equivalent |
When counting inventory, merchandise in transit plays a crucial role depending on whether it is added to the company's balance sheet. Items under "FOB shipping point/destination" generally do not appear in stock listings at year ends. However, they should be included as the risk and rewards of ownership have transferred to the buyer.
With the advent of e-commerce, most commercial electronic transactions occur under the terms of "FOB shipping point" or "FCA shipping point". Most analysts see this as a disadvantage of online shopping compared to traditional in-person purchasing, where "FOB destination" is more prevalent.
| Incoterms 2000 |
|---|
| EXW | FCA | FAS | FOB | CFR | CIF | CPT | CIP | DAF | DES | DEQ | DDU | DDP |
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