Free on Board (FOB)
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What Does FOB Stand For in Shipping?
FOB stands for Free on Board and it is an acronym used in the shipping and deliveries industry. FOB changes the rules for who is responsible for a shipment, shifting it from the seller to the buyer. Free on Board can be used to reduce costs for both the buyer and seller.
What Does FOB Mean?
FOB means that the responsibility and costs of shipping goods fall not on the seller but on the buyer. There are many advantages to this shift in roles and it is popular in cases where bulk orders are filled. The seller will load the goods onto a ship communicated by the buyer, and the buyer clears the goods for export.
Who Pays For FOB?
Free on Board entails that the cost for delivery of goods is the responsibility of the buyer. Any additional costs or claims will also be at the discretion of the buyer. From the perspective of the buyer, once the goods have left their premises they are no longer their responsibility.
What Does FOB Shipping Point Mean?
When you are shipping via Free on Board it will be stated as FOB, [destination]. For instance, if the buyer is located in Kansas, Missouri the shipping label would state FOB, Kansas. Once the shipment arrives at the FOB destination the buyer can accept it and the sale will be completed.
Advantages of FOB for a Seller
FOB is good for a seller as once the product leaves the warehouse the shipment is the responsibility of the buyer. If the shipment is damaged or lost the buyer will need to claim back on it, while the seller considers the deal done once it leaves their premises.
A seller also gains from Free on Board as it is one less thing to worry about in the purchasing process. If a buyer takes responsibility for a shipment when they purchase it the seller doesn’t need to price up delivery routes, sort out export taxes, etc, so the process is a lot simpler for them.
Advantages of FOB for a Buyer
An advantage for the buyer of FOB would be that they can organize the best way to deliver the shipment. This means that they can get a good deal on freight services and not have to rely on the seller’s chosen delivery method. This can lower the cost of purchase significantly.
Free on Board can also be good for the buyer if they have many warehouses or premises that they would want to deliver to and don’t have a central location to work from. Organizing their own shipping would mean they can deliver to numerous locations without incurring additional costs, or causing confusion for the seller.