When the terms of sale are fob shipping point, the buyer should pay the freight charges.

What is FOB Shipping Point?

The term FOB shipping point is a contraction of the term "Free on Board Shipping Point." It means that the buyer takes delivery of goods being shipped to it by a supplier once the goods leave the supplier's shipping dock. The transportation department of a buyer might insist on FOB shipping point terms, so that it can take complete control over the delivery of goods once they leave a supplier's shipping dock.

Accounting for FOB Shipping Point Terms

Since the buyer takes ownership at the point of departure from the supplier's shipping dock, the supplier should record a sale at that point. The buyer should record an increase in its inventory at the same point (since the buyer is undertaking the risks and rewards of ownership, which occurs at the point of departure from the supplier's shipping dock). Also, under these terms, the buyer is responsible for the cost of shipping the product to its facility.

Realistically, it is quite difficult for the buyer to record a delivery at the shipping point, since this requires proper notification into the buyer's inventory management system from an outside location. From a practical perspective, recognition of receipt is instead completed at the receiving dock of the buyer. Thus, the sale is recorded when the shipment leaves the seller's facility, and the receipt is recorded when it arrives at the buyer's facility. This means there is a difference between the legal terms of the arrangement and the typical accounting for it.

Insurance Claims Under FOB Shipping Point Terms

If the goods are damaged in transit, the buyer should file a claim with the insurance carrier, since the buyer has title to the goods during the period when the goods were damaged.

FOB destination is a contraction of the term "Free on Board Destination." The term means that the buyer takes delivery of goods being shipped to it by a supplier once the goods arrive at the buyer's receiving dock. There are four variations on FOB destination terms, which are noted below.

FOB Destination, Freight Prepaid and Allowed

The seller pays and bears the freight charges and owns the goods while they are in transit. Title passes at the buyer's location.

FOB Destination, Freight Prepaid and Added

The seller pays the freight charges but bills them to the customer. The seller owns the goods while they are in transit. Title passes at the buyer's location.

FOB Destination, Freight Collect

The buyer pays the freight charges at time of receipt, though the supplier still owns the goods while they are in transit.

FOB Destination, Freight Collect and Allowed

The buyer pays for the freight costs, but deducts the cost from the supplier's invoice. The seller still owns the goods while they are in transit.

Thus, the key elements of all the variations on FOB destination are the physical location during transit at which title changes and who pays for the freight. If a buyer's transportation department is proactive, it may avoid FOB destination terms, instead favoring FOB shipping point terms so that it can better control the logistics process.

Any type of FOB terms may be superseded if a customer elects to override those terms with customer-arranged pickup, where a customer arranges to have goods picked up at the seller's location, and takes responsibility for the goods at that point. In this situation, the billing staff must be aware of the new delivery terms, so that it does not bill freight to the customer.

Since the buyer takes ownership of the goods at its own receiving dock, that is also where the seller should record a sale.

The buyer should record an increase in its inventory at the same point (since the buyer is undertaking the risks and rewards of ownership, which occurs at the point of arrival at its shipping dock). Also, under FOB destination terms, the seller is responsible for the cost of shipping the product.

If the goods are damaged in transit, the seller should file a claim with the insurance carrier, since the seller has title to the goods during the period when the goods were damaged.

In reality, the shipper will probably record a sale as soon as merchandise leaves its shipping dock, irrespective of the terms of delivery. Thus, the real impact of FOB destination terms is the determination of who pays for the freight expense.

What does FOB Mean in Shipping Terms?

Free on Board, or FOB is an Incoterm, which means the seller is responsible for loading the purchased cargo onto the ship, and all costs associated. The point the goods are safe aboard the vessel, the risk transfers to the buyer, who assumes the responsibility of the remainder of the transport.  

FOB is the most common agreement between an international buyer and seller when shipping cargo via sea. This Incoterm only applies to sea and inland waterway shipments.

What are the Seller’s Responsibilities?

When entering into a sales contract with the Incoterms of FOB, the seller assumes the following responsibilities: 

• Export Packaging: Arranging all export packaging so the cargo can be shipped safely.

• Loading Charges: Any expenses incurred during the loading process at the seller’s warehouse.

• Delivery to Port: Trucking fees incurred while moving the cargo from the warehouse to the port of loading.

• Export Duty, Taxes & Customs Clearance: Ensuring the cargo is exported correctly.

• Origin Terminal Handling Charges: The seller is responsible for OTHC.

• Loading on Carriage: The seller is responsible for the costs incurred to load the cargo onto the carriage. 

What are the Buyers Responsibilities?

When a buyer agrees to purchase goods under the Incoterms of FOB, they consent to the following responsibilities and risks: 

• Freight Charges: Carriage charges to ship the cargo from the port of loading to destination. 

• Insurance: Under FOB, freight insurance is not a requirement; however, it is the buyer’s decision if they would like to purchase an insurance policy for their shipment.

• Destination Terminal Handling Charges: The buyer is responsible for DTHC. 

• Delivery to Destination: Once the cargo is unloaded from the carriage, the buyer is responsible for the final carrier fee to deliver the load to their destination. 

• Unloading at Destination: In the event of any expenses incurred during the unloading process at the buyer’s warehouse, the buyer is responsible. 

• Import Duty, Taxes & Customs Clearance: The buyer is responsible for all taxes and fees associated with customs clearance. In the event of dunnage, penalties, or delays, the buyer must cover the charges and risks associated with it. 

Advantages of Shipping FOB for the Buyer

There is a reason FOB shipping is so popular amongst buyers and sellers; each party’s responsibilities give them the most control while the cargo is in their territory. The advantage for the buyer when purchasing under FOB Incoterms is they have the most control over the logistics and shipping costs, which allow them to choose their shipping methods. 

FOB allows the buyer to select their freight forwarder for the entire shipment. Instead of relying on the supplier for part or all of the freighting process. The buyer only needs to rely on a single company throughout the transportation process, thus, minimizing the back and forth and potential for miscommunication between two shipping companies. 

FOB Incoterms are also the most cost-effective option, as it allows the buyer to shop for the best possible shipping rate. While the transfer of risk occurs when the goods are safely loaded onto the shipping vessel, the buyer’s forwarder is responsible for the entire transportation process. Once the cargo leaves the seller’s warehouse, the buyer is in possession of the load, and can better control the successful outcome of their shipment. 

Sellers appreciate FOB Incoterms as well because once the cargo leaves their factory, they can consider the sale complete. 

Disadvantages of Shipping FOB for the Buyer

There are little to no disadvantages to FOB for most buyers. For newer importers or importers who have always purchased under Incoterms where the seller organizes the freight costs, the process can seem more complicated, because there is an added step. However, the significant cost savings and control quickly outweigh this disadvantage. 

We also recommend that newer importers work with a China third-party logistics company company to assist them in the process. Importers lacking experience in FOB shipments are encouraged to tell their logistics company so the forwarder can walk them through the process more thoroughly and fully know what to expect before starting the shipment. 

When to Use and FOB Agreement

FOB is a viable agreement for most bulk cargo that will be shipped by sea. Buyers and sellers often confuse FOB by understanding the shipment can be sent by any mode of transportation; this is not correct. The International Commerce Center (ICC), explains FOB is only viable for sea and inland waterway shipments. When not shipping via sea, buyers and sellers could consider FCA as a comparative Incoterm which works for all modes of transport. 

We recommend buyers consider FOB Incoterms when they wish to use a China Freight Forwarder to organize their shipments. We suggest this because FOB will offer low unit pricing for the cargo sold while also allowing the seller to take partial responsibility for the freight for as long as it remains within their country. 

While the possession of the cargo transfers to the buyer once the freight is loaded onto a truck at the seller’s warehouse, the seller still maintains responsibility in ensuring the shipment safely clears the rails of the ship. Buyers can calculate the total costs of a FOB agreement by combining the FOB price from the seller and requesting a quotation from their freight forwarding company for the logistics. 

China FOB – Standard Rates and Timeframes

There is an apparent reason why Chinese suppliers and buyers routinely rely on FOB agreements; it is because rates and timelines are incredibly transparent for both party’s, and the terms allow for the highest amount of flexibility. Below we have included a list of the route timelines and estimated rates to ship standard containers via FOB from China. 

The rates defined above are approximate and subject to change. If you would like to be sent a custom rate for your next shipment from China, request a shipping quote, and we will send you a detailed offer. 

How Does Shipping Under FOB Work in China?

If you are new to purchasing FOB from China, it will be beneficial for you to understand the overall shipping process and what to expect when you begin communicating with Chinese suppliers in your next production. 

Requesting a Product Quotation

Factories in China typically offer product quotations under FOB Incoterms. For small products that will inevitably be shipped by air, or small suppliers with little experience working with international buyers, you may receive quotations in EXW Incoterms. However, the vast majority of the quotes you will receive from sellers in China will be under FOB Incoterms. If you look at a quotation, you will usually see the unit price, FOB as the Incoterm, and a Chinese city, the shipping point. 

The unit price will indicate the cost of the products, plus all expenses associated with the Incoterm. The Incoterm will define the agreed International Commercial Trade Term. The shipping point is the specific port they agree to use. If cargo requires export from a different port than what the seller initially quotes, you would need to communicate with your supplier to adjust the unit price to factor in the cost to ship your cargo to a different port. For example, if the supplier quotes FOB Ningbo, but you would like your freight shipped from Shanghai, then the unit price may differ, and the seller needs the opportunity to adjust their offer. 

Requesting a Shipping Quotation

When requesting a shipping quotation from a freight forwarder or third-party logistics company, the information you will need to provide is as follows: 

• Ship from address – this would be your supplier’s address
• Ship to address – the final destination
• Pickup and drop off service – sometimes forwarders will want to know if they will be handling the end-to-end aspect of the service, or if a local trucking company might take over. In most instances, it is best to have your freight forwarder handle everything, so you have less moving pieces to cause worry. 
• Type of cargo – freight forwarding companies need to know what is being shipped for two significant reasons. First, certain products require specific documentation, types of containers, include hazardous materials, or are illegal to transport. By telling your forwarder what your cargo consists of from the beginning, they will help you stay prepared in the event any documentation or compliance might be required. The second reason is that they often handle the customs brokerage portion of the import. So the sooner they know what the products are, the faster they can begin preparing the documentation needed to import. 
• The dimension of the cargo – The cargo dimensions play a vital role in allowing the freight forwarder to offer you suggestions about the ideal shipping method for your shipment.

The above five items are the essential pieces of information a freight forwarding company would need. Before you can obtain an accurate quotation from your logistics company, it is best to confirm the carton dimensions and weight and address where the collection with your supplier with taking place. Once you have all of the above information, requesting a quotation from your supplier is easy, and you should be able to get your shipping rates in a couple of hours. 

Once you have all of this information from your supplier, you can request a quotation from us, and we will send you a detailed shipping offer for your cargo. 

Confirming the Shipment 

Once you are satisfied with the shipping quotation, the next step is to inform your logistics company that you would like to use them to ship your products. Depending on where the cargo is traveling, they will usually send you some documentation, and ask you to sign an agreement stating that you wish for the forwarder to handle your shipment. 

Any missing information will be confirmed, and the logistics company will reserve a spot on the designated ship for your cargo. 

Shipping Day

On the day your cargo is scheduled to leave, the seller’s warehouse and your logistics company will arrange a truck to collect it. Be sure to ask your forwarder if they can communicate with the supplier or prefer you to organize all communication. Some forwarders request only to speak with their customer. In contrast, we recognize that having our team in China means we can better coordinate directly with suppliers and be prepared to react in the event of any delays or issues before the shipping day.  If you are shipping a full container load (FCL), the truck will carry the container to the seller’s warehouse, and the seller will load the cargo directly into the container. 

If you are shipping less than container load (LCL), your cargo will be loaded onto the truck and taken to a warehouse to consolidate your shipment with the other consignments sharing the same container. 

Once your cargo loads onto the forwarder’s truck, it will begin its journey to the port. The cargo is weighed to confirm the dimensions initially provided are accurate, and the exporting and loading process begins. 

Shipping via FOB Incoterms from China is simple, straightforward, and the ideal way to ensure your products leave China safely and arrive at your destination seamlessly.  

FOB FAQ’s

What is FOB pricing?

The seller includes the cost of goods, delivery to the port of destination, and all export requirements. The buyer accepts the risk once the cargo is aboard the ship. FOB pricing will always include a seaport where the seller agrees to export. Anytime a quotation includes FOB, it means the seller confirms this responsibility. A city name must always follow FOB.

Who pays the freight on FOB shipments?

The buyers are always responsible for the freight costs to ship products under FOB Incoterms. 

What is the difference between FOB and CIF?

The significant difference is that CIF places the cost of shipping and insurance on the seller, unlike a FOB agreement where these are the buyer’s responsibilities. CIF is much more expensive for the buyer because they rely on the seller to include shipping in the price of their products.

Is Insurance required for FOB shipments?

Typically, no. But it’s good practice for either the buyer or seller to obtain China freight insurance. While it is customary for the buyer to arrange insurance, this is often negotiated before confirming the sale.

Where can I learn more about shipping incoterms?

Check out our: Shipping Incoterms: the Complete Guide.

Who pays the freight on FOB shipping point?

When the terms of sale are FOB shipping point?

When goods are shipped FOB destination and the buyer pays the freight charges the buyer?

When goods are shipped FOB destination the buyer is responsible for the shipping costs?