What is the difference between FOB Shipping Point and FOB Destination?

fob shipping point

The buyer takes responsibility for the transport cost and liability during transportation. “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. Cost, Insurance, and Freight is an Incoterm where the seller is responsible for arranging the shipping and paying for the insurance of the goods. However, the CIF incoterm places a little more responsibility on the buyer’s side as it requires them to arrange the shipment to the destination port and pay any relevant charges there.

The main difference between FOB and CIF lies in the transference of ownership and liability. Terms indicating that the buyer must pay to get the goods delivered. (The buyer will record freight-in and the seller will not have any delivery expense.) With terms of https://www.bookstime.com/ the title to the goods usually passes to the buyer at the shipping point. This means that goods in transit should be reported as a purchase and as inventory by the buyer. The seller should report a sale and an increase in accounts receivable.

What is FOB Destination?

Describe at least two things that could happen within a company that would make it necessary for the controller to dig into the numbers and provide a write up to management. (For instance, the controller might notice that inventory has shrunk by over 50%. “The key to successful business operations is effective inventory management.” Do you agree? Explain the significance of international transfer pricing for a company.

Because the legal owner must deal with paperwork or accidents, you should consider carefully who you want to be on the hook. This gives the business protection, in the event of a failed payment after the business has already paid for the transportation. You are therefore the one who will be required to file a claim so as to be reimbursed. The buyer provides the seller with adequate notice of the vessel’s name, the loading point, and the required delivery time. Note that while international shipments use “FOB” in the definition provided by the Incoterms standards (always standing for “Free On Board”), this is not always the case for North America shipments. Domestic shipments in Canada and the US will often operate with a different meaning that is specific to North America and not consistent with the Incoterms standards. Should any of the goods get damaged or lost during shipment, it is the buyer, not the seller who should file any claims for reimbursement.

A Small Business Guide to FOB Shipping

Traditionally with fob shipping point, the seller pays the transportation cost and fees until the cargo is delivered to the port of origin. Once on the ship, the buyer is responsible financially for transportation costs, customs clearance, fees, and taxes. Conversely, with FOB destination, the seller pays the shipment cost and fees until the items reach their destination, such as the buyer’s location.

What is CFR price?

Cost and Freight, a legal term used in contracts for international trade that means that the seller delivers the goods on board the vessel or procures the goods already delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel.

International shipments typically use “FOB” as defined by the Incoterms standards, where it always stands for “Free On Board”. Domestic shipments within the United States or Canada often use a different meaning, specific to North America, which is inconsistent with the Incoterms standards. Due to potential confusion with domestic North American usage of “FOB”, it is recommended that the use of Incoterms be explicitly specified, along with the edition of the standard. Incoterms apply to both international trade and domestic trade, as of the 2010 revision. On the flipside, the buyer must note in its accounting system that it has inventory on its way. That inventory is now an asset on the buyer’s books, even though the shipment has not arrived yet.

Leave a Comment

Your email address will not be published. Required fields are marked *