What does FOB mean?

Shipping and logistics are both complex processes, and the additional use of various terminology may further complicate negotiations and contracts. One of the most important and widely used shipping industry terms is “FOB”, or simply “Free On Board”. Understanding what FOB means is important to ensure that subsequent agreements and contractual obligations are carried out correctly and efficiently.

What is an FOB Agreement?

An FOB agreement provides clarity and certainty when it comes to the respective obligations of the buyer and the seller in terms of their physical movements of goods in the transaction, especially where transport of goods is involved. “FOB” is the acronym for “Free On Board” and is often used in international trade agreements, to state the respective legal obligations of the buyer and the seller. As part of an FOB agreement, the seller agrees to deliver the goods to the buyer’s designated carrier at a specific location, free of charge.

What Does FOB Mean for the Buyer?

From a buyer’s perspective, the FOB terms mean that the seller’s responsibility for the goods ends at the port of shipment. This means the buyer is responsible for the cost of transporting the goods from the port of shipment and paying any duty or customs charges at the destination port or border. The buyer also accepts responsibility for the goods from the point of shipment to the destination port or border.

There are two types of “FOB” shipping agreements that buyers should be aware of – “FOB Origin” and “FOB Destination”. With FOB Origin, the buyer is responsible for transportation costs associated with transport of goods from the seller to the port of shipment. The buyer is also responsible for all costs related to delivery of the goods at the destination port or border.

With FOB Destination, the seller is responsible for transportation costs associated with transporting the goods from the seller to the destination port or border. The buyer accepts responsibility for the goods once they have arrived at the destination port or border. In both types of FOB agreements, the buyer is also responsible for any taxes or duties that may be due at the destination port or border.

Conclusion

FOB agreements are a common and important term used in international shipping and logistics contracts. Knowing exactly what is meant by FOB helps buyers and sellers determine who is responsible for transportation costs, taxes, and duties at the port of shipment and the destination port or border. This helps to make sure that all contractual obligations are addressed and satisfied.