Free on Board (FOB) means that the seller pays for transportation of the goods to the port of shipment, plus loading costs. The buyer pays freight, insurance, unloading costs and transportation from the port of destination to the factory. The passing of risks occurs when the goods pass the ship's rail at the port of shipment. Internationally the term specifies the port of loading, e.g. "FOB New York" or "FOB Vancouver". There are two kinds of FOB; "FOB shipping point" and "FOB destination," to distinguish when the title of goods passes from the seller to the buyer.
Under the terms of "FOB shipping point," the title of the goods passes to the buyer at the shipping point. Similarly, under the terms of "FOB destination", the title of the goods passes to the buyer when the goods arrive at their destination.
The distinction is important because it determines who pays for the shipping costs of the merchandise: whoever holds the title to the merchandise at the time of its shipping pays for its transportation costs unless otherwise noted (e.g., freight prepaid or freight collect). Also, it is important that if the shipment is damaged while traveling the owner must file the freight claim.
Thats pretty much in brief about Free on Board (FOB). Explanation of other incoterm 2000 will be covered in coming up posts. Thank you again for visiting Zephyr Free Online Learning Center.
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