Understanding the Difference Between FOB Shipping Point and FOB Destination

The phrase passing the ship’s rail is no longer in use, having been dropped from the FOB Incoterm in the 2010 revision. 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. Only the most enthusiastic lawyer could watch with satisfaction the spectacle of liabilities shifting uneasily as the cargo sways at the end of a derrick across a notional perpendicular projecting fob shipping point from the ship’s rail. For the past 52 years, Harold Averkamp (CPA, MBA) hasworked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. Get free ecommerce tips, inspiration, and resources delivered directly to your inbox.

What is the Difference Between FOB Shipping Point and FOB Destination?

In a Freight Collect arrangement, the buyer pays for all shipping costs, from the originating port to the final destination. This means that the buyer assumes ownership and responsibility as soon as the goods are safely loaded onto a shipping vessel. FOB destination is a type of Incoterm (international commercial term) used in international trade. It means that a seller pays for all shipping costs and that a transaction is not complete until the goods reach the buyer’s destination undamaged. FOB Destination transfers the responsibility of shipped goods when they arrive at the buyer’s specified delivery location – usually the buyer’s loading dock, post office box, or office building. Once the products arrive at the buyer’s location, the legal title of ownership transfers from the seller to the buyer.

Port handling at the FOB destination

Indicating « FOB port » means that the seller pays for transportation of the goods to the port of shipment, plus loading costs. The buyer pays the 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 are loaded on board at the port of shipment. Responsibility for the goods is with the seller until the goods are loaded on board the ship. Essentially, when the seller delivers the goods and ships them, they’re taking care of all the transportation costs up to the final destination.

Accounting Guidance

Managing freight delivery with FOB Shipping Point and FOB Destination requires careful planning and attention to detail. Best practices include properly packaging the goods, selecting qualified carriers, and communicating openly with buyers or sellers throughout the transportation process. FOB Destination may be a good option if the seller is experienced in transporting goods or if the goods are fragile and require special handling.

• What is FOB shipping, how does it differ from other incoterms, and when should you use it?
• When accounting for shipping costs, accountants assume follow the shipping terms to determine who is responsible for this expense.
• Shipping terms affect the buyer’s inventory cost because inventory costs include all costs to prepare the inventory for sale.
• In this arrangement, the seller retains liability for the goods until they are delivered to the buyer.
• If the goods are damaged in transit, the buyer should file a claim with the insurance carrier, since the buyer has title to the goods during the period when the goods were damaged.
• The qualifiers of FOB shipping point and destination are sometimes used to reduce or extend the responsibility of the supplier in an FOB shipping agreement.

Incoterms define the international shipping rules that delegate the responsibility of buyers and sellers. One common misconception is that FOB Destination is always more expensive than FOB Shipping Point. However, the actual cost depends on a variety of factors, including the distance between the buyer and seller, the cost of transportation, and the value of the goods being shipped. Additionally, some buyers may assume that FOB Shipping Point is always the better option because it provides more control over the transportation process, but it may not be feasible for every situation. FOB Shipping Point can be a good option for buyers who want more control over the transportation process or who are located closer to the seller.

Country/region

• One of the most prominent examples of this standardization is the International Commercial Term, or incoterm.
• However, FOB Destination can also be more expensive for the seller, as they are responsible for all transportation costs and any potential damages or losses during transit.
• Once the products arrive at the buyer’s location, the legal title of ownership transfers from the seller to the buyer.
• It defines the point when a buyer or seller becomes liable for goods transported by sea.
• Whether you’re a buyer puzzled by freight charges or a seller navigating the shipping process, understanding the term FOB, or “Free on Board,” is crucial.
• The transportation department of a buyer might insist on FOB shipping point terms, so that it can take complete control over the delivery of goods once they leave a supplier’s shipping dock.