What is a Free on Board (FOB Incoterms)?

• Free on Board (FOB Incoterms) is a shipment term used in international trade to specify the point at which the risk and responsibility for the goods transfer from the seller to the buyer. It designates that either the buyer or the seller assumes responsibility for the transported goods, depending on the shipping terms.

• The two common terms, FOB Origin and FOB Destination, refer to different arrangements regarding the delivery of goods, indicating the point at which the seller's responsibility ends and the buyer's responsibility begins in the shipping process.The key difference between FOB Origin and FOB Destination is when ownership and responsibility change hands:

• FOB Origin: The transfer happens at the seller's shipping point. The seller is responsible for loading the goods onto the transport vessel at the port of shipment. Once the goods are loaded, the buyer assumes all risks and responsibilities.

• FOB Destination: The transfer happens at the buyer's specified final destination. The seller retains the risk of loss and is responsible for transportation costs until the goods reach the buyer’s specified location.

Understanding who covers transportation costs is crucial in international trade:

• FOB Origin, Freight Prepaid: The buyer assumes all risk once the seller ships the product, but the seller pays all shipping charges up to the port of shipment.

• FOB Origin, Freight Collect: The buyer assumes all risk once the seller ships the product and is responsible for all charges related to transportation costs.

• FOB Destination: The seller is responsible for any loss until the products arrive at the buyer's location, and the seller also bears all shipping costs until the items are securely delivered to their ultimate destination.

FOB shipping terms play a significant role in international trade, providing clear guidelines on the division of responsibilities and costs associated with the transportation of goods. These terms help prevent disputes by clearly outlining when the responsibility for the goods passes from the seller to the buyer.

By grasping this concept, businesses can better manage risks and costs associated with transporting goods across borders

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