International shipping can get very complicated, especially for small to medium-sized shippers that might lack the resources and time necessary to navigate the international commercial laws and regulations the shipping industry uses. As a result, some shippers prefer to establish fixed agreements with their customers. These formal contracts cover the basic tenets of any international shipping arrangement, such as the agreed-upon rate cost, the payment terms and length of the contract, insurance liability terms, accessorial fees, and language that spells out precisely who pays and is responsible for the transportation.
Depending upon the terms of the agreement, the shipper or the buyer may be responsible for transportation costs. In North America, the logistics industry uses a specific term to distinguish between options for “free on board” shipments: FOB shipping point and FOB destination.
Freight brokers are probably most familiar with the term FOB, as it is one of the main objectives they receive when calling shippers and asking about who manages their transportation. Basically, the term translates to “we are not responsible for our transportation costs; our customer or buyer is the one who takes care of it.” The purpose of this article is to help clarify and make it easier for shippers to understand the incoterms of FOB shipping point and FOB destination.
What is Free on Board Shipping Point?
The term FOB shipping point means the freight buyer receives the title for the purchased commodity once the load arrives at a port. Transferring the title to the buyer finalizes the sale. All responsibilities for the shipper have ended, including the shipping costs and any additional fees or penalties that might incur during transportation — such as accessorial fees, and insurance liabilities.
An Example of FOB Shipping Point
A major pharmaceutical company in Germany sells a U.S. distributor $34,000 worth of medical equipment in an ocean container marked as an FOB shipping point. The U.S. buyer would therefore arrange transport of the container with a freight forwarder and take over all responsibilities therein after the container arrives at the shipping terminal. Once the title transfers from the buyer to the seller, the German company would invoice their sale and record the end of the transaction.
What is a Free on Board Destination?
As you can probably surmise, FOB destination refers to when the sale of the commodity becomes final once the product physically arrives at the buyer’s receiver. In the case of a FOB destination, the shipper manages the transportation and is responsible for the fees and insurance liability while the load is in transit. In the case of FOB destination, if the shipper sends a product that arrives damaged, they are the party responsible for either replacing or reimbursing the buyer for the costs involved.
An Example of FOB Destination
An industrial machinery company in Indiana sells a small Brazilian firm a conveyor system. As a newcomer to international shipping that has never imported anything via ocean, the Brazilian company prefers that the shipper takes responsibility for the transportation. The shipment would therefore be a FOB destination shipment, where the U.S. company would arrange transportation and take on the responsibilities for the shipping liability while it is in transport.
Partner with Industry Experts to Gain Visibility into All your FOB Shipments
Small to medium-sized shippers should feel confident about international shipping. After all, they are expanding their business verticals worldwide and opening new opportunities that can generate profit margins. Understanding who takes over the responsibility for your transportation and liability costs when moving an ocean shipment is an important step. Regardless of which type of FOB shipment is right for your business, you should partner with VIZION, a maritime leader that is standardizing how ocean shippers gain visibility into their ocean shipments. VIZION provides automatic shippers with real-time tracking solutions, allowing customers, big or small, to access unprecedented data that can help optimize your business. It’s smooth sailing with VIZION. Contact our experts today!