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18/04/2016 07:54:38 PM

Distinction between Free on Board (FOB) shipping point and destination

"Free on board (FOB) shipping point" and "free on board destination" are international trade terms that specify where the title of goods are transferred to the buyer from the seller. FOB shipping point indicates that the title of goods is transferred from the seller to the buyer when the goods are placed on a delivery vehicle. Conversely, FOB destination indicates that the title of goods transfers from the seller to the buyer when the goods are delivered to the buyer's destination.

Since FOB shipping point transfers the title of the shipment of goods when the goods are placed at the shipping point, the legal title of those goods is transferred to the buyer. Therefore, the seller is not responsible for the goods during delivery.

For example, assume Company ABC buys electronic devices from its supplier in China and it signs a FOB shipping point agreement. If the designated carrier damages the package during delivery, the company takes full responsibility and cannot ask the supplier to reimburse the company for the damages. The supplier is only responsible for bringing the electronic devices to the carrier.

Conversely, with FOB destination, the title of ownership is usually transferred at the buyer’s loading dock, post office box or office building. Once the goods are delivered to the buyer’s specified location, the title of ownership of the goods transfer from the seller to the buyer. Consequently, the seller legally owns the goods and is responsible for the goods during the shipping process.

For example, assume Company XYZ buys computers from a supplier in the United States and it signs a FOB destination agreement. Assume the computers were never delivered to Company XYZ's destination. The supplier takes full responsibility for the computers and must either reimburse Company XYZ or reship the computers.

 
Accountants report a merchandiser's and a manufacturer's revenues when a sale is made. The term, FOB Shipping Point, indicates that the sale occurred at the shipping point—at the seller's shipping dock. FOB Destination indicates that the sale will occur when it arrives at the destination—at the buyer's receiving dock.

Accountants also assume that the cost of transporting the goods corresponds to these terms. If the sale occurred at the shipping point (seller's shipping dock), then the buyer should take responsibility for the cost of transporting the goods. (The buyer will record this cost as Freight-In or Transportation-In.) If the sale doesn't occur until the goods reach the destination (terms are FOB Destination), then the seller should be responsible for transporting the goods until they reach the buyer's unloading dock. (The seller will record the transportation cost as Freight-Out, Transportation-Out, or Delivery Expense.)