Defining Free On Board (FOB)
Free on board (FOB) is a financial and contractual term which is used to indicate if the buyer and seller is responsible for the goods that are damaged or destroyed during shipping. Free on Board (FOB) shipping point indicates that the buyer is at a risk as they take the responsibility of the goods once they are shipped by the seller.
What is Free On Board (FOB)?
Free on board is a useful term in trading which helps to understand the entity who is liable for the goods which are damaged or destroyed during the shipping of the goods and services. The supplier of the goods has to record a sale at the point of departure.
Free on board origin or FOB origin means the purchaser takes the ownership of the goods and services and pays the shipping cost of the goods as soon as the goods leave their point of origin. On the other hand, Free on board destination or FOB destination means that the seller retains the risk of loss from the time the goods are shipped until they reach their buyer.
In simple words, the Free on board (FOB) terms like FOB origin and FOB destination indicate when the risk of loss shifts from the buyer to seller. These free on board terms are important especially for the international transactions and contracts involving delicate and vulnerable items.
It is important that each party involved in the trading has a good understanding of the free on board or FOB terms to make sure that the transfer of goods is smooth from the buyer to the seller. These FOB terms are highly important as they have a big impact on inventory, shipping and insurance costs.
Companies should also be aware of Free On board (FOB) because the FOB establishes when the goods become an asset.
