“What is FOB Shipping: A Simple Guide
What does FOB mean?
FOB is the abbreviation of Free On Board, which means that when the goods are ready for delivery at the supplier’s shipping terminal, it is the responsibility of the importer, who then insures and packs the goods and incurs shipping costs until it reaches the port. The importer, as the importer, assumes all risks of loss of the goods or any damage that may occur to the goods.
How the FOB process works
The seller is required to prepare the goods, final invoice, export formalities and documents, but the goods are in the ship at the designated port and date designated by the buyer and bear all costs and risks until the goods are loaded on the designated port. The buyer must be fully informed of the place and time of delivery of the goods and bear the cost of pre-check shipping.
In fact, the buyer shall bear all import-related formalities and costs from the date the goods are on board, and bear all the risks of the goods from the date of boarding and the contract to transport the goods from the designated port, and bear the responsibility for delays in transportation. adaptations and risks posed by the cargo. Pay for all customs clearance.
Seller’s obligations under FOB Incoterm
The seller performs all its obligations until the goods are loaded on board at the port of loading. Sellers must pass various obligations, including:
export packing
loading fee
Ship to port
Export duties, taxes and customs clearance
loading
Buyer’s obligations under FOB Incoterm
It is the buyer’s responsibility to take care of the goods when they are loaded on board. This means that the buyer must bear all costs and risk of loss after the goods are shipped. Buyer must comply with the following obligations:
International Shipping Fees
destination terminal fee
delivery to destination
unloading at destination
Import duties, taxes and customs clearance
Why FOB is important:
FOB incoterm determines the point at which the risk of damage or loss passes from the seller to the buyer.
Incoterms are essential for parties engaged in international trade, especially for contracts involving vulnerable or easily stolen items.
Our example demonstrates the concept of FOB destination, as it is the standard and most popular FOB term.
However, other agreements such as FOB origin also apply.
This is where the buyer takes responsibility and ownership of the goods at the time and place where they came from.
For example, the Chinese factory in our case.
Buyers can choose FOB origin when they know they can get a better contract in shipping than suppliers.
However, it must be noted that the Uniform Commercial Code (UCC) generally assumes that the terms of trade agreements are FOB origin.
That is, when there is no unique FOB language in the purchase contract.
Applying FOB shipping terms means that liability, risk and costs are shared equally between the seller and buyer of the goods.
FOB incoterm makes the seller responsible for all charges associated with your goods until they are loaded onto the carrier at their port of origin.
For example, FOB Shanghai would indicate that the seller assumes all responsibility for the goods until they are loaded onto the ship in Shanghai.
Then, after this, the responsibility will pass to you as the buyer.
FOB terms often include a phrase referring to a port.
The referenced port is the terminal from which the supplier will ship the goods.
For example, if your seller offers “”FOB Shanghai”” terms, then your responsibility for shipping costs begins in Shanghai to your final destination.
However, it should be noted that the port of origin must not be the port closest to the supplier’s location.
This is because fees and export licenses may vary from port to port.
The cost varies from one port to another, which are more expensive compared to other ports.
What does CIF mean?
incoterm CIF (CIF) refers to the price of the goods, plus insurance, and shipping costs. In Incoterms, title to the goods passes from the time of shipment to the buyer.
This means that the person who will deliver the goods will bear all costs of the goods, insurance and shipping until the goods are ready for delivery at the importer’s port.
The seller is obliged to enter into a contract for the carriage and insurance of the goods and to choose the vessel on which it will be transported, in which case the seller is not an agent here, but the seller does so itself in the execution of the contract of sale.
What is the difference between FOB and CIF
The main difference between them is the point in time when responsibility and responsibility is transferred from the seller to the buyer. This occurs in a FOB shipment when the cargo passes over the ship’s rail at the agreed port of loading. In a CIF agreement, the seller pays all costs and is liable until the goods arrive at the port of destination chosen by the buyer.
As a buyer, when should you choose FOB over CIF?
If you have experience in importing goods, you can choose FOB. But new buyers have very little experience and knowledge of the transaction, and they may end up with issues that could result in them being penalized and charged.
As a buyer, when should you choose CIF over FOB?
Some importers also use CIF to import a small amount of products because the cost of insuring the goods is higher than what the seller charges. Unlike FOB, you don’t have to worry about dealing with claims, risks or shipping costs when importing. This method is also best for new importers with little knowledge of the trade.
in conclusion
The use of FOB shipping terms may seem complicated, but I recommend it to avoid cultural differences and language barriers.
That is, creating hassle and legal issues when it comes to taking title and paying for shipping costs for international shipping.
Also, I know that choosing the correct Incoterms when importing from China can be a daunting task.
That’s why tj-chinafreight. is here for you.
We will help you choose the best Incoterms when importing from China.
Contact us today and we will make your shipping from China simple and easy.”
