FOB destination versus FOB shipping point by Yessy Sundoro

As mentioned, there are two distinct types of FOB shipping terms, and there are additional add-on terms that buyers use to reduce or extend the responsibility to the seller in FOB shipping. FOB shipping only applies to sea and inland waterway modes of transport in the vast majority of countries. However, in North America, the term FOB has been expanded for all types of transportation under the Uniform Commercial Code .

Whether it is your first rodeo, or it’s finally time to replace the Accord you’ve been driving for 8 years, choosing the right vehicle for you can seem an impossible task. FOB shipping point might let us find rates cheaper than our printer charged. We were a small shop in Texas, however, so we weren't https://www.bookstime.com/ in Southern California to deal with U.S. customs and had no expertise in that area. The two major FOB types are FOB shipping point and FOB destination, which we'll discuss in depth below. This suggests that there is a difference between what the term implies and its actual accounting implementation.

What is FOB Shipping? Understanding FOB Shipping Point vs. Destination

The timing difference from shipping terms is typically just a few days and unlikely to affect periodic financial statements. However, a CPA preparing GAAP financial statements will put in more scrutiny. If you are a seller using FOB destination and you are shipping using a third-party carrier such as US Postal Service or UPS, consider getting insurance on any expensive goods that you ship.

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.

Compare the Sales Invoice With the Bill of Lading

FOB shipping and FOB destination are the main categories to determine when the title of the goods is transferred from the seller to the buyer, who pays the fees and who is liable. But there are some finer points to know, and you may see these terms on your invoice or bill of lading. This is also the moment that the supplier should record a sale since they’re taking ownership at the receiving dock. It’s common for high-value goods to be sent via FOB destination designation. That allows the buyer to ensure they arrive in good condition and can be inspected upon receipt.

Of course, it is in the buyer’s best interest to have the shipping terms be stated as FOB (the buyer’s location), or FOB Destination. In addition to this, FOB is advantageous to the seller as they are not responsible for arranging the marine transportation or any insurance. The seller can also consider the sale completed once the cargo has been loaded onto the shipping vessel. Fob Destination, Freight Collect - The buyer pays all freight fob shipping point charges but does not take responsibility until the cargo gets to the destination port. When a seller quotes a FOB shipping term, they will usually include either the port of origin or the port of destination in the title to show if they are quoting for FOB Shipping Point or FOB Destination. The FOB Incoterm is the most commonly used agreement between international buyers and sellers when the delivery of cargo is shipped via sea.

Where are the risk transfers in FOB?

Destination means that the legal title of ownership is transferred when the shipment arrives at the buyer’s warehouse, office, or PO box. The seller is liable for all the costs until the goods arrive at the destination and only records a sale when the shipment is delivered to the buyer. In North America, the term “FOB” is written in asales agreementto determine when the liability and responsibility for the shipped cargo transfers from the seller to the buyer. When it is indicated as “FOB Origin,” it means that the transfer occurs at the seller’s shipping dock when the goods are safely on board the ship. On the other hand, another International commercial term used in the shipping process is the FOB shipping destination. The distinction of Free on board destination or FOB destination from FOB shipping point is that the seller remains liable for any loss or damage of the package until it gets delivered to the buyer.

When you are shipping internationally, there may be documents which you first need to clear at customs. When all these costs are added up, the shipping cost becomes far more expensive than what it would cost you to ship the same goods domestically. If customsseize an item , this could lead to hefty penalties and fines, and that will definitely raise the overall cost of your FOB shipment.