What is Free On Board? Definition of Free On Board, Free On Board Meaning - The Economic Times (2024)

FAQs

What is Free On Board? Definition of Free On Board, Free On Board Meaning - The Economic Times? ›

Definition: Free On Board (FOB) indicates that the supplier pays the shipping costs that usually also include the insurance costs from the point of production to a specified destination, at which point the buyer takes responsibility.

The FOB (Free On Board) price is the price of goods at the frontier of the exporting country or price of a service provided to a non-resident. It includes the values of the goods or services at the basic price, the transport and distribution services up to the frontier, the taxes minus the subsidies.

Free on board (FOB) definition

FOB origin, or FOB shipping, means the buyer takes responsibility at the point of origin of the freight. FOB destination means that the buyer only takes responsibility for freight once it reaches its destination, and the seller is liable for any damage.

While FCA shipments can be delivered via any transportation modes (e.g., air, land, sea), FOB delivery applies only to inland waterway or sea shipments.

A. Freight on Board (FOB) is a shipping term that indicates when liability and shipping costs shift from the seller to the buyer. Under FOB terms, the seller is responsible until the goods are loaded onto the shipping vessel, after which the buyer takes over risk and expense.

The free market is an economic system based on supply and demand with little or no government control. One of the central principles of a free market is the concept of voluntary exchange, which is defined as any transaction in which two parties freely trade goods or services.

Freeboard is the distance measured from the waterline to the upper edge of the deck plating at side of the freeboard deck amidships. Ships must have a load line mark located amidships on both sides to indicate the maximum allowable draught under specified conditions (geographical and seasonal).

A buyer can save money by using FOB Destination since the seller assumes costs and liability for the transportation. However, the disadvantage for the buyer is the lack of control over the shipment, including shipment company, route, and delivery time.

In FOB shipping point agreements, the seller pays all transportation costs and fees to get the goods to the port of origin. Once the goods are at the point of origin and on the transportation vessel, the buyer is financially responsible for costs to transport the goods, such as customs, taxes, and fees.

Under the Free Carrier, or FCA Incoterm, the buyer is responsible for all freight costs.

What does FOB mean? ›

FOB stands for “free on board” or “freight on board” and is a designation that is used to indicate when liability and ownership of goods is transferred from a seller to a buyer. Free on Board: Free on board indicates whether the seller or the buyer is liable for goods that are damaged or destroyed during shipping.

Freight allowed (or collect) is when the buyer, or receiver of goods, pays the freight charges upon delivery of the goods to them. While freight prepaid, the shipper or seller pays all of the shipping costs up until the cargo arrives to the buyer.

Free on board, often abbreviated as “F.O.B.,” applies to the sale of goods and indicates that purchased property will be placed on board a vessel for shipment at a designated place without expense to the buyer for packing, potage, cartage, etc.

CIF requires the seller to cover the total cost of the goods, freight and insurance. Whereas FOB only requires the seller to cover the cost of loading the goods onto the vessel; the buyer then pays to transport and insure the goods (as well as any other charges incurred once the goods are on board).

FOB Value = Ex-Factory Price + Other Costs

(b) Other Costs in the calculation of the FOB value shall refer to the costs incurred in placing the goods in the ship for export, including but not limited to, domestic transport costs, storage and warehousing, port handling, brokerage fees, service charges, et cetera.

For example, if a buyer in Vancouver buys basketball shoes from a seller in Chengdu, China, he must pay for the transport costs from the seller's warehouse to the port, cost of loading goods onto a ship, and all transport costs from the shipping port to his warehouse/store.

Free on Board means the seller is responsible for the product only until it is loaded on board a shipping a vessel, at which point the buyer is responsible. With CFR, the seller must arrange and pay all costs to ship the product to a destination port, at which point the buyer becomes responsible.

CIF requires the seller to cover the total cost of the goods, freight and insurance. Whereas FOB only requires the seller to cover the cost of loading the goods onto the vessel; the buyer then pays to transport and insure the goods (as well as any other charges incurred once the goods are on board).

FOB vs FOD: Definitions and Meanings

With FOB, the seller is responsible for the goods until they are loaded onto a ship, while with FOD, the seller is responsible for the goods until they are delivered to the buyer's designated location.