FOB Destination stands for Free on Board. It is also a shipping agreement between seller and buyer. It determines whether the buyer or seller is responsible for any damage or loss during shipping from China to the USA.
FOB Origin or FOB Shipping Point, means that the buyer is responsible for every damage or loss after the seller ships the products to the specific location and also becomes the owner of the products.
FOB is only referred to while shipping through sea, i.e., Sea Freight from China to the USA. But in the United States of America, this term has become vast and covers all modes of transportation.
What is the Difference Between FOB Destination Origin and FOB Shipping Destination?
FOB Origin means that the buyer pays the shipping cost from Amazon FBA, or factory and takes ownership of the products from the point of origin.
FOB Destination is similar to EXW. In it, the seller is responsible for all damage or loss until the products will not be shipped to the specific location. But once the products arrive at the specific location, the rest of the responsibilities will fall on the buyer.
Explaining FOB Destination
FOB is one of the most important incoterms that were published by the International Chamber of Commerce (ICC) in 1963 just to clean up international shipping.
Such contracts are very useful for solving many sensitive issues while shipping, such as shipping time, shipping cost, paper works, and who is responsible for any damage or loss during shipping from China to the USA.
The definition of FOB may differ in each country. It’s totally up to both parties which shipping laws they will use for shipping.
The positive aspect of FOB is that it’s very helpful in such cases when ownership of the freight moves from seller to buyer. Both parties must determine which party will pay for any damage or loss while shipping from China to the USA to make the trade clear.
If there is FOB Origin in the contract, then the buyer pays the shipping cost from Amazon FBA or factory and takes ownership of the products from the point of origin.
Contrary to it, if there is FOB Destination in the contract, then the seller is responsible for all damage or loss until the products are shipped to the specific location. But once the products arrive at the specific location, the rest of the responsibilities will fall on the buyer.
Step-by-Step Procedure for FOB Destination Process
Here is the step-by-step procedure for Free on Board (FOB) Shipping, that might clear your point of view;
- Step 1: Let’s suppose you purchase things from the supplier in China and you want to ship using the FOB incoterms. The next three coming steps (Step 1- Step 4) of the FOB Destination process will be completed at the supplier’s expense.
- Step 2: The next step is packing your products and loading them onto the truck (or maybe any other mode of transportation) at your supplier’s location.
- Step 3: The truck transfers the product to the port.
- Step 4: The next step is to load the goods onto the cargo.
- Step 5: Once the product is loaded onto the cargo, from that point to the end destination, you are responsible for each and everything such as freight cost from port to your location, arranging the paper works for custom clearance, receiving the cargo, unloading the products, store and reselling them in the USA. And unfortunately, if your cargo faces any loss or damage, then you are only responsible for that cost and you have also to pay for freight insurance.
FOB Destination and Pricing
If you want to calculate FOB Destination costs, then you can use the Freightos.com International Freight shipping calculator that is generally used for calculating the freight costs.
Your job is just to enter the weight and dimensions (L*W*H) of your products and enter the origin and destination of your shipment, you can easily calculate the FOB Destination shipping cost within no time.
Examples of FOB Destination Shipping
For Example, Adidas manufactures shoes and sells those shoes to Nike. If Adidas ships 10,000 shoes from their factory in New York to the Nike Store in California by making a deal of FOB Destination Shipping Point.
Nike is responsible for all kinds of losses while shipping shoes from New York to California. Contrary to it, there will be a contract between both parties using the term FOB Destination,
Adidas is responsible for all the risks until the products reach safety at Nike’s office and is also responsible to ensure the cargo in case of any damage or loss.
Summary of the Incoterm 2024
Here is an overview of Incoterm 2024.
EXW-EX Works
As discussed earlier, EXW is useful when a seller is responsible for shipping the products to a specific location.
The seller is not responsible for any loss after transferring the products to the buyer’s location.
FCA: Free Carrier
According to FCA Incoterms, the seller must deliver the products to the carrier or any third person selected by the buyer at the specific location chosen by the buyer.
FAS: Free Alongside Ship
The seller transports the products when they are placed alongside the vessel designated by the buyer at the selected port of shipment.
The danger of any loss or damage to the products passes when the goods are alongside the container. The buyer tolerates all costs from that instant onwards.
FOB Destination: Free on Board
FOB is useful when ownership is being transferred from Seller to buyer.
After boarding the products, the buyer bears all the costs.
CFR: Cost and Freight
The seller transfers the products onboard the container or gets the products already delivered.
The seller bears all the costs of shipping the goods to their destination.
CIF: Cost, Insurance, and Freight
The seller transfers the products onboard the container or gets the products already delivered.
The seller is responsible for freight insurance. The seller bears all the costs of shipping the goods to their destination.
CPT: Carriage Paid To
The seller transfers the products to the carriage or the person selected by the buyer.
The seller bears all the shipping costs until the products reach the carrier.
DPU: Delivered at Place Unloaded
The seller delivers the products to the specific place and is also responsible for unloading them.
The seller bears the cost of any damage or loss while unloading the products.
What is the Major Difference Between FOB Destination Incoterms and all other Shipping Incoterms?
Generally, three incoterms are especially applied to sea freight shipping: FOB, FAS, and CFR.
What is the major difference Between FOB Destination and FAS?
Free Alongside Ship (FAS) is especially used in sea freight shipping. According to FAS incoterm, the supplier is responsible for paying all the charges for shipping your products to the specific port but is not responsible for getting the products abroad.
Contrary to FOB Incoterms, the supplier is not responsible for shipping the products from a port to ship.
What is the major difference between CFR and FOB terms?
According to Cost and Freight (CFR) incoterms, the supplier pays the cost from its destination to your port. And once the goods are unloaded in the receiving country, then all the responsibility is yours.
