FOB Shipping Point – What FOB Means for Online Sellers?

Are you confused about the FOB shipping point too? When you understand the terms of sale, your online business will be different. 

For example, you are an online seller who is dealing with shipping products, one day to a customer in Australia and the next in Canada. 

Free on board is a key term in international shipping that controls the point at which responsibilities are the goods that are transferred from the seller to the buyer. 

In this busy world, for both sellers and buyers, knowing what is FOB, can be a huge help to avoid unexpected expenses and misunderstandings. 

I’ll break down the concept of fob shipping point, from basic definitions to practical examples. You just follow me!

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What Is FOB?

Free on board, or shorter, FOB, is a term in shipping and international trade that goes back to the early dates in maritime commerce. 

With shipping goods by sea, FOB terms figure out who is responsible for the shipping costs, the insurance, and the risks during the transfer. Is it the seller or the buyer?

So, what does FOB mean in shipping?

To clarify this, for example, you’re a seller of handmade pottery from your shop to a buyer overseas. Under the FOB terms, you can agree that the responsibility passes to the buyer when the goods are loaded into the ship. 

What does this mean? While you handle the cost and the risks of taking the goods to the port, the buyer takes them over once they are on board. 

Here’s a simple diagram to help you understand this transfer:

FOB terms help both parties understand their roles and responsibilities through this shipping process. 

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3 Ways In Which FOB Is Used In Shipping

1. FOB in International Trade

FOB shipping point in international trade is a crucial part of how global shipping operates. As in the import/export industry, FOB is used for everything from machinery and electronics to fashion goods and raw materials.

For instance, let’s imagine you’re a buyer in the U.S electronics components from a manufacturer in China. By agreeing with the FOB terms, you are responsible for paying for the shipping, insurance, and handling once the goods are loaded in the ship. 

Industries that use fob terms, like automotive manufacturing, textiles, and electronics, control the logistics of moving huge volumes of goods across the borders. 

2. FOB for Small Businesses

For small businesses, understanding and effectively using fob terms can be a lot of help too when it comes to managing shipping process and costs.  So, what is the FOB meaning in business?

For example, I’ll show you this Czech online store for beads. Let’s say that G&B Beads ships the beads to a buyer in Canada. Under FOB shipping point terms, the buyer takes the international shipping charges and risks of loss or damage when the jewelry leaves their workshop. 

Therefore, the small businesses can focus more on growth and quality than the global shipping logistics. 

3. FOB in E-Commerce

In the e-commerce world, FOB shipping point is an important tool for effective international shipments. And if you’re looking for a platform that offers many options for sellers, here it is the popular Amazon. 

Let’s say you run an online store selling home decor items on Amazon, and you have to ship some decors from the U.S to the UK. With the FOB terms, the responsibilities go to the buyer once the decors leave your warehouse. 

You’ll see that the FOB terms will help in your e-commerce operations. Grow your store’s global reach, reduce unexpected costs, and you can better control your international shipping process. 

What Is The FOB Shipping Point In Online Commerce?

What does FOB shipping point mean in online commerce? It’s the same as the previous one. The FOB shipping point is a big deal to whom the ownership and the responsibilities are. 

I’ve done my research on Reddit and found some online retailers that have experience with the FOB terms. Check out the responses of online sellers on Quora too!

Different online sellers, dropshippers or wholesalers, can handle these flexible FOB terms as well. 

For instance, the dropshippers can make the direct shipment from manufactories under FOB destination terms. Hence, here they keep on responsibilities of the goods till they reach out to the customers. 

Online sellers can help a lot in their FOB shipping terms if they understand and put into practice the FOB shipping point terms.

FOB vs Other Shipping Terms

To avoid misunderstandings and some surprising pay, you had better know the difference between the FOB terms and other shipping terms. In this way you’ll clearly know who pays for the insurannce, who takes the risks in the different stages of the shipment. 

CIF (Cost, Insurance, and Freight)

Cost, Insurance, and Freight, or shorter CIF, is another term that is used in international shipping. While FOB manages who gets the responsibilities of the goods when they’re loaded, the CIF goes further. 

I’ll show you the comparison between FOB and CIF in this table, and I’m sure it’ll be clearer.

For instance, if a seller ships machinery from China to the US under the FOB terms, let’s say you are the buyer, you have to pay for the ocean freight, for the insurance and for any damage that might happen through the transfer. 

But, if it ships under CIF terms, your seller will cover these costs till the goods come to your port destination. 

FOB vs CFR (Cost and Freight)

Cost and Freight, or CFR, is as important as FOB terms and FOB shipping point in international trade. Each of them is connected to transporting goods. 

Let me help you imagine this better in your head with this image for CFR terms:

For example, if you are a manufacturer from Japan and ship electronics to the US under FOB terms, you won’t pay for the freight and the insurance once the goods are loaded, they will be paid by the buyer. 

But, when it’s on the CFR terms, you’ll have to cover these costs and make sure that the electronics will be delivered safely to the destination port. 

FOB vs FAS (Free Alongside Ship)

The FOB and FAS terms are both important in international trade. Mostly, for the responsibilities and the risks between the sellers and the buyers. 

For instance, you have ordered some goods from Spain, and under FAS terms your costs will be the moment the seller puts the goods next to the ship. Unlike, under FOB terms your costs are when the seller puts the goods into the ship. 

Are you still confused? Here’s a comparison that can help you:

EXW (Ex Works): From Factory to You

EXW (Ex Works) is another term for international shipping,. Here the seller manages all the goods available in their factory or warehouse. 

Let’s say you live in Germany and want to buy some machine from a factory in China. Under EXW terms, you are responsible for the transportation and export clearance and take the risks for the machine when it arrives at the Chinese factory. 

Also, when it goes through the borders it’s your costs for the taxes, the customs duties, and the insurance as well. 

I’ll illustrate for you the steps that you as a buyer need to make under EXW terms: 

➡ Arrange Pickup

To avoid misunderstandings, coordinate with the seller for the exact locations where the goods will be available.

➡ Transportation

You have to organize the transportations for the goods from the seller’s place to your destination. 

➡ Export Customs Clearance

Make sure you know about all export regulations and can handle all customs procedures, might be any export licenses or permits.

➡ Insurance

Because the goods are the buyer responsible, you have to cover your insurance to protect the goods through the journey. 

➡ Loading and Handling

It’s your job to handle the loading of the goods in the ship and to make sure they are packaged safely. 

➡ Transport Documentation

Make sure you have all needed transport documentation, such as the bill of lading, commercial invoice, packaging list, and other export documentation. 

➡ Costs and Risks

From the moment the goods are available at the seller’s place, you have to bear all the costs and risks, like transportation costs, customs duties, taxes. 

➡ Communication with Seller

Keep in communication with the seller for the pickup arrangements, for the preparations of the goods, or any other instructions about the goods and the shipment. 

➡ Destination Customs Clearance

It arrived in your country! Now you have to handle all the taxes and duties that you have to handle on your destination. 

➡ Delivery to Final Destination

Somehow you have to transfer the goods from the port to your destinations, and that’s the last thing you have to handle, the delivery.

DDP (Delivered Duty Paid): All-Inclusive Shipping

Here is the opposite from the EXW terms. DDP (Delivered Duty Paid) is shipping where the seller takes all the responsibilities and all the paying, till they arrive at the buyer’s specified destination. 

For instance, you are the seller of luxury furniture from Italy, and under DDP terms, you’re shipping them to the US. All the costs, risks, insurance, taxes, custom services, are on your hand. 

While, under FOB terms, your job is done once the goods are loaded onto the ship. 

To make the right choice between the DDP and FOB terms, it’s important to know well enough the difference between these two terms. I have them secured for you too!

✅ PROS

DDP is a simplified process. The buyer does not need to care about the duties and the paying. Their job is just to wait for the goods to arrive. 

Plus, there are not any hidden costs, everything is upfront, from the taxes to the freight.

Therefore, with the DDP terms are increasing the buyers buying experiences, since the seller does the job from the start to finish. 

❌ CONS

Here are the cons too.

With DDP terms the prices are higher. Why? Because the seller is charging higher to cover all the additional responsibilities and costs. 

Plus, all this international logistics and customs compliance can take a lot of the seller’s time. 

Hence, sellers take the risk if the shipment is delayed or is issued, especially during the delivery.  

FOB Shipping Point in Action: Real-World Applications

How To Navigate FOB as a Seller?

Managing shipping cost and logistics can be much more efficient if you as a seller use Free on Board terms. 

For example, a small manufacturer uses FOB terms to sell internationally handmade goods. By specifying FOB shipping point, the seller controls the costs till the goods are loaded. That’s how they agree on the competitive freight rates and choose reliable and cost–effectively carriers. 

I recommend that you try ShipStation. I have done some FOB shipping points through this tool, and it’s a lot easier and organized, especially if you are new to this. You can generate labels, track the shipment, and optimize the shipping routes. 

How To Navigate FOB Shipping Point as a Buyer?

Now let’s be buyers. Navigating FOB terms means that you understand the implications and responsibilities connected with FOB shipping point. 

I can give you an example here too. So, I ordered some electronics from China, under FOB terms. Hence, I was shocked by the unexpected shipping cost, freight charges, and import duties.

Also, here are some tips to avoid these unexpected costs in the future.👇

Be careful and review the terms to see at which FOB shipping point they assume the responsibility and costs for the goods. 

It’s hard to plan the budget ahead, because there always are additional costs. So, my recommendation is to use freight forwarders. 

They can simplify the FOB shipping by combining shipments, controlling the documentation, and choosing between the competitive rates with carriers. 

Keep in touch with the seller so you’ll have more details about the shipment and the time it’ll arrive. 

FOB Shipping Point Negotiations

Key Considerations for Successful FOB Deals

The first key is understanding and correctly applying Incoterms, especially FOB shipping point versus FOB destination. This shows when the ownership transfers to the buyer. 

Secondly, with better communication between the seller and the buyer, there are not going to be misunderstandings and arguments. 

To avoid common pitfalls like additional shipping costs or responsibilities, the parties should agree on their roles and responsibilities. Using freight forwarders can simplify managing the documentation with transfer. 

Best 8 Practices for Negotiating FOB Terms

Both, buyer and seller can benefit from negotiating FOB terms, through the next real-world practices, I’ll tell you how:

1.Use Detailed Contract Templates

An online retailer from the US uses detailed contract templates to illustrate FOB terms with the international supplier from China clearly.

 Involving the exact transfer point, insurance, and costs to avoid misunderstandings.

For instance, let’s say that an online retailer based in the US is negotiating a shipment of electronics from an international supplier in China. 

They use a detailed contract template outlining Free on Board (FOB) terms.

This template specifies the exact point at which the responsibility and ownership of the goods transfer from the supplier to the retailer. Also, it includes who is responsible for the insurance and costs during the different stages of transit. 

By using this contract, both parties avoid misunderstandings regarding the responsibilities and expectations throughout the shipping process.

2. Specify the Point of Transfer

To know when the ownership transfers from the seller to the buyer, they agree FOB point to be the Shanghai Port. 

Now, Imagine that ihe US retailer and the Chinese supplier agree that the FOB point will be the Shanghai Port. 

This means that the supplier’s responsibility ends once the goods are loaded onto the ship at Shanghai Port.

From this point onward, the retailer assumes all risks and costs. By specifying this point of transfer, both parties have a clear understanding of when the ownership and liability for the goods change hands.

3. Discuss and Agree on Costs

They upfront discussed the responsibilities and costs for insurance, taxes, fees, to avoid them later on.

Now, let’s keep up with the scenario I started with above. 

Before finalizing the shipping agreement, the retailer and supplier discuss and agree on all associated costs, including insurance, taxes, and fees. 

They decide that the supplier will cover the cost of transporting the goods to the port and loading them onto the ship, while the retailer will handle the insurance and shipping fees from the port onward. 

This upfront discussion ensures that there are no unexpected expenses that could lead to disputes later.

Get my point?

4. Communicate Openly

Next, it’s very important to communicate openly and with asking questions of each other, they  won’t come to any misunderstandings.

Hence, you can regularly check in with each other to confirm details and address any questions or concerns that arise.

 This open communication helps prevent misunderstandings and ensures that both parties are on the same page regarding the shipment’s status and any potential issues.

5. Consult with Logistics Experts

If something does not sit right, the retailer can ask for help from freight forwarders or logistics experts.

For example, when faced with a potential delay at the port, you can reach out to a freight forwarder who provides expert advice on how to expedite the customs clearance process. 

This consultation helps you make informed decisions and avoid potential pitfalls.

6. Review and Negotiate Terms Thoroughly

Before finalizing the agreement, both need to carefully review the terms and negotiate them to not affect any costs or responsibilities.

Before signing the final shipping agreement,you (as a retailer) and  the supplier must carefully review all the terms and conditions. 

Hence, you need to negotiate any points that could impact costs or responsibilities, such as the specifics of delivery timelines and the handling of damaged goods.

7. Monitor and Document Shipments

The retailer keeps on track the shipment documents with some online tools to address any issues if they come. 

8. Plan for Contingencies

They musn’t forget about the damage or delays that may happen through the transfer, they keep them in the contract as well. 

Conclusion

You explored FOB works different from the other shipping points, like CIF (Cost, Insurance, and Freight), and CFR (Cost, and Freight). 

FOB makes clear agreements when the responsibilities and the costs transfer from the seller to the buyer, impacting shipping costs and risk management. 

I showed you some practical advice for both parties, the seller and the buyer. Also, how important it is to communicate with each other and to review the contract often. 

I encourage you to apply these FOB shipping points in your future deals and transfers. Let me know your experience in the comment section, maybe you’ll come across some new unexpected costs that may help me in the future. 

Or if you still have some questions, put it there, I’m here!