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FOB is one of those seemingly complex transportation terms that are known as shipping terms of sale. FOB is an abbreviation for ‘free on board’, and it indicates that the price of delivery is included with the price of the goods, or that the seller is prepared to ship it for free to a certain point. This is in line with long-established international commercial laws that standardize rules and regulations relating to the shipment of goods (in our case, auto transportation / car relocation) to avoid complications that occur due to the different trade laws between countries. It pertains specifically to the International Chamber of Commerce’s Incoterms 2010, and is used specifically when it comes to sea freight.
FoB shipping point and FoB destination affects the inventory cost for the buyer, as these costs are involved in preparing the inventory for sale. It is an accounting treatment that involves adding costs to the inventory. Due to the delay in recognizing this expense as an immediate cost has an impact on the net income. FOB shipping point and FOB destination charges also have an impact on people who ship their vehicles overseas.
International and domestic contracts should outline the provisions that include the terms of payment and the place of collection and delivery as agreed upon by both parties – the seller and the buyer. The term free on board (FOB shipping point) should be indicated and identified by the specified physical location. This enables all parties to know exactly when the responsibility for freight charges is passed from the seller to the buyer.
Sometimes, the FOB shipping point, terms and the origin and destination points are qualified by modifiers. These modifiers determine the specifics relating to payment of transportation charges, and include:
Collection: Similar to cash on delivery, the carrier will collect transportation charges from the buyer.
Prepaid & Add: This method involves the seller prepaying the transportation charges, however, it is added to the invoice in order to be reimbursed by the buyer.
Prepaid & Allowed: With this method, the seller prepays the transportation charges, which are already included in the contract price.
FOB Shipping Point vs. Free on Board Destination
Free on Board shipping point or FOB origin is a term that indicates that the responsibility of the goods and the title thereof transfers from the seller to the buyer as soon as the goods to be transported are placed onto the freight carrier (ship or plane) or delivery vehicle.
The legal ownership title of the goods transfers from the seller to the buyer when the goods are placed onto the vehicle, and that means that the seller is no longer responsible for the goods during transit. The FOB shipping point is a further condition that limits the responsibility once the item changes hands at the shipping dock at the seller’s premises.
Free on Board destination denotes that when the responsibility for the goods transfers from the seller to the buyer when it reaches the buyer’s premises. In other words, the seller is the legal owner of the goods and is responsible for it while it is in transit.
When it comes to FOB destination, the seller adjusts its records once the goods are delivered to the receiving dock. At that point, the buyer will record the increased inventory.
Another important difference between FOB shipping point and destination is the way in which costs are divided. With the former, the seller pays for transportation costs until it reaches the port of origin, such as in the case of roll-on roll-off transportation. From the moment the vehicle is loaded onto the ship, the buyer is responsible for any costs associated with transportation, including fees, customs and taxes. With FOB destination, the seller or exporter assumes any costs or fees until the vehicle reaches its destination. The buyer will be responsible for any fees, taxes and customs once the vehicle enters the port.
Wishing to ship a vehicle overseas? Nationwide Auto Transportation can assist with the local car relocation from the address of origin to the port of origin anywhere in the United States of America. Request a free car shipping quote.