- Free On Board
:otheruses|FOB
FOB is an
initialism for Free On Board or Freight On Board. Generally, FOB deals with theshipping of goods. It specifies which party (buyer or seller) pays for which shipment and loading costs, and/or where responsibility for the goods is transferred. The last distinction is important for determiningliability for goods lost or damaged in transit from the seller to the buyer. Precise meaning and usage of "FOB" can vary significantly. International shipments typically use "FOB" as defined by the Incoterm standards. Domestic shipments within the US or Canada often use a different meaning, specific to North America.Incoterm
Under the
Incoterm standard published by theInternational Chamber of Commerce , FOB stands for "Free On Board", and is always used in conjunction with a port of loading.cite web
title=FOB Preamble
publisher=International Chamber of Commerce
url=http://www.iccwbo.org/incoterms/preambles/pdf/FOB.pdf
format=PDF
accessdate=2008-10-01] Indicating "FOB "port" means that the seller pays for transportation of the goods to the port of shipment, plus loading costs. The buyer pays cost of marine freight transport,insurance , unloading, 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.For example, "FOB Vancouver" indicates that the seller will pay for transportation of the goods to the port of
Vancouver , and the cost of loading the goods on to the cargo ship. The buyer pays for all costs beyond that point (including unloading). Responsibility for the goods is with the seller until the goods pass the ship's rail. Once loaded on to the ship, the buyer assumes risk.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 standardcite web
title=Incoterms FAQ
publisher=International Chamber of Commerce
url=http://www.iccwbo.org/incoterms/id3038/index.html
accessdate=2008-10-01] cite web
title=Preambles to Incoterms 2000
publisher=International Chamber of Commerce
url=http://www.iccwbo.org/incoterms/id3040/index.html
accessdate=2008-10-01] . For example, "FOB New York (Incoterms 2000)". Incoterms apply primarily tointernational trade , notdomestic trade within a given country.This use of "FOB" originated in the days of
sailing ship s. When the ICC first wrote their guidelines for use of the term in 1936 [cite web
title=Understanding Incoterms
publisher=International Chamber of Commerce
url=http://www.iccwbo.org/incoterms/id3042/index.html
accessdate=2008-10-01] , the ship's rail was often still relevant, as goods were often passed over the rail by hand. In the modern era ofcontainerization , the term "ship's rail" is somewhat archaic for trade purposes. The standards have noted this. Incoterms 1990 stated, "When the ship's rail serves no practical purpose, such as in the case of roll-on/roll-off or container traffic, the FCA term is more appropriate to use." Incoterms 2000 adopted the wording, "If the parties do not intend to deliver the goods across the ship's rail, the FCA term should be used."North America
The term FOB for "Freight On Board" is commonly used when shipping goods within the
United States , to indicate who pays loading and transportation costs, and/or the point at which the responsibility of the goods transfers from shipper to buyer. This usage derives from the now obsolete US "Foreign Trade Definitions" of 1941Verify source|date=October 2008."FOB shipping point" or "FOB origin" indicates the buyer pays shipping cost, and takes responsibility for the goods when the goods leave the seller's premises. "FOB destination" designates the seller will pay shipping costs, and remain responsible for the goods until the buyer takes possession. A related but separate term "CAP" ("customer arranged pickup") is used to denote that the buyer will arrange a carrier of their choice to pick the goods up at the seller's premises, and the liability for any damage or loss belongs to the buyer. [cite web
title=What is the significance of FOB Shipping Point and FOB Destination?
url=http://blog.accountingcoach.com/fob-shipping-point-fob-destination/
publisher=AccountingCoach, LLC
date=2006-07-12
accessdate=2008-10-01]Note that this usage is inconsistent with the Incoterm standards. North American FOB usage corresponds to Incoterms approximately as follows:
Accounting and auditing
When counting
inventory forfinancial accountancy purposes, shipping terms determine whether goods in transit are added to a company'sbalance sheet . Items under "FOB shipping point/destination" (North American usage) generally do not appear in stock listings at year end. However, they should be includedFact|date=October 2008 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 analystsWho|date=October 2008 see this as a disadvantage of online shopping compared to traditional in-person purchasing, where "FOB destination" is more prevalent.References
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