If you’ve ever shipped anything, you’ve likely seen the acronym FOB in your shipping documents. Though, how many people know what it means? It turns out, not a lot. Even those in the shipping industry with knowledge of freight shipping terminology often are confused as to the true meaning. Show
To help shippers better understand FOB, we've broken it down below:
What does FOB mean in shipping?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. When used with an identified physical location, the designation determines which party has responsibility for the payment of the freight charges and at what point title for the shipment passes from the seller to the buyer. In international shipping, for example, “FOB [name of originating port]” means that the seller (consignor) is responsible for transportation of the goods to the port of shipment and the cost of loading. The buyer (consignee) pays the costs of ocean freight, insurance, unloading, and transportation from the arrival port to the final destination. The seller passes the risk to the buyer when the goods are loaded at the originating port. Freight on Board: Freight on board is another term that is often used in place of free on board. However, it’s worth noting, this is not an official term.
How is “FOB” used in shipping documents?The term “FOB” is used in four different ways when it comes to freight shipping. These include:
To understand each designation, we must first understand the difference between place of origin and place of destination and freight collect vs. freight prepaid. The first part of the designation determines where the buyer assumes title of the goods and the risk of damage from the seller (either at the moment the carrier picks the goods up for delivery or at the time of actual delivery). The second part indicates responsibility for freight charges. “Prepaid” means the seller has paid the freight; “collect” indicates the buyer is responsible for payment. Place of Origin vs. Place of Destination: Place of origin means the buyer assumes ownership of the shipment the moment the carrier picks up and signs the bill of lading while place of destination means the seller retains ownership and control of the goods until they are delivered. By denoting who “owns” the shipment, there is no ambiguity in responsibility of shipment. Freight collect means the person receiving the shipment is responsible for all freight charges. They also assume all risks and are responsible for filing claims in the case of loss or damage. Freight prepaid is the opposite. The shipper accepts responsibility for all freight charges and risks.
Why does FOB matter?FOB is important for a number of reasons, but most importantly, shippers and carriers need to understand FOB designations in damage situations. Some receiving docks will refuse delivery of obviously damaged goods, rather than accept with a damage notation for future claim against the carrier. However, a shipment designated FOB Origin technically belongs to the buyer/consignee at the time that it is shipped. So, the consignee would be refusing delivery of goods it legally owns and bears the risk for. The seller has no legal reason to accept those goods back and the return shipment could possibly result in additional damages.
Let us help.If all of this seems too confusing to follow, see how Freightquote by C.H. Robinson can help handle the placement of your shipment for transport. The legal issues raised in FOB designations are nothing new to us here at Freightquote. By utilizing our easy-to-use self-service tools, you can efficiently manage your shipping strategy, should any issues arise. As the buyer, you are responsible for all the costs once the goods are loaded onto a ship (or plane) in their country of origin, to the arrival of the goods at your door in the UK. You are responsible for the transport cost once the goods are on the water. The terms of FOB normally includes a reference to a port. This is the port from which the seller will ship the goods. If, for example, your supplier offers “FOB Shanghai” terms then they expect your responsibilities start with the freight element from Shanghai to the UK. The port is not always the closest one to the seller’s premises as costs and export licences required for each port can differ. The costs vary from different ports, some are more expensive than others. See our page on which ports are most cost-effective here. When we quote on a shipment, it will be based on FOB terms as standard. If your supplier sells you the goods on FOB terms, and you have a quote from us… you’ve got all of the transport costs covered. All there is to look into now is the Duty and VAT. You can work it out here. Shippo; define fob, fob shipping meaning, fob shipping point, fob meaning, trends FOB Shipping | My Supplier’s ResponsibilitiesWhen buying goods on FOB Shipping terms, your supplier’s responsibilities stretch a lot further than simply transporting the goods to the port of loading. This is an issue that constantly pops up, so we thought we had better explain it. On these terms, your supplier covers all costs to get the goods onto the vessel and our quote covers everything from that moment onwards all the way to delivery at your specified address. The costs your supplier has to cover are: Document fees – These are the costs to produce all of the shipping documents for your goods. Terminal Handling Charge – This is the cost of loading your goods at the port. If this is not paid your goods will not even make it into a container, let alone on board a vessel. Once your goods are loaded into a container (by hand or by fork-lift) they must be lifted onto the vessel by cranes. Licence fee – Your supplier has to have specific licences to export products, if they do not have this then they will pay a fee each time they export goods. Customs clearance – When goods are cleared through customs in the country of origin, a customs clearance agent is needed who will bill for their services and any costs from the local customs that may be incurred. Transport costs – The costs to truck your goods to the chosen outbound port is also included, but as you can see it is far from the only cost. Telex release – As technology has moved on, you will very rarely receive your shipping documents through the post. The most common way to receive them is via an electronic release. This is also billed to your supplier. Without the Bill of Lading to state you own the goods, you will not be able to receive them. Any other local charges – On occasion, the customs officer in the country of origin will want to inspect the cargo or may query something on the paperwork. If, for example, your supplier accidentally makes a mistake when declaring the goods, and customs request a re-submission then your supplier will also have to cover this cost. This works the same if there is a customs inspection or the goods had to be stored for any reason. If you were buying on Ex-works terms, all of these costs would be your responsibility. Shippo; free on board, fob shanghai, exw vs fob, ex works vs fob, fob shipping, what is fob shipping, fob terms, trends To view our infographic – Click Here The Costs of FOB Shipping Terms
What Does FOB Price On Alibaba Mean?More seasoned exporters in the Far East will offer FOB shipping terms as standard. A quick search on Alibaba shows that sellers are encouraged to offer an “FOB Price” to potential customers so everyone knows where they stand. The FOB price on Alibaba takes the supplier’s local shipping costs into account when calculating unit prices. Due to this, FOB unit prices are higher than the cost of the product alone but there is less risk of a nasty surprise later on in the negotiations! FOB prices on Alibaba mean the exact same thing as FOB shipping terms do – your supplier pays all the charges until your goods are on board the vessel at the designated port. The only difference is that, when buying using the Alibaba FOB price, instead of being required to compensate the supplier for these charges through an invoice the additional fees are already included in the unit price. FOB Shipping Terms | My Suppliers CostsAs mentioned throughout, using FOB terms can be a very straightforward way of importing goods from China to the UK. While most suppliers found on Alibaba and the like offer ‘FOB’ prices for their products, you may find them back-peddling on this saying that they need to add the FOB costs to your quote! Although not ideal, this does happen from time to time and while not totally upfront of the supplier don’t let this alarm you too much. The FOB costs may move slightly from time to time, but should always be in a similar region. Some costs are calculated on a ‘per cbm’ basis and some are fixed. Below are some examples of FOB costs that your supplier will have to pay: Based on an LCL shipment (all in USD$):Documents FeeThis is for the creation of the shipping documentation and costs around $50-80Port HandlingGenerally around $10-15 per cbmENSEU Regulations require Entry Summary Declarations (ENS) are lodged for inbound cargo, this generally costs $25Customs ClearanceCosting around $60 this is for the export declaration to the Customs in the country of originExport Licence FeeYour supplier may already have one but if not, depending on the products, an Export Licence can cost anything from $50Pick Up FeeDepends on the shipment size and the collection location but generally between $100-250Telex Release FeeThe electronic transfer of the official shipping document (Bill of Lading) to you to transfer control of the goods, this costs around $35Based on a full 20ft container :Documents FeeAs with the LCL this will be around $80 per set.ENSapproximately $25.Seal FeeContainers must be sealed for transit, and as the sole ‘tenant’ you are responsible for all costs… including this. Expect around $10.Handling Fee$50 is included in the price of a full container for handling. This is the charge from the overseas agent to make the arrangementsTelex ReleaseThe telex release fee is fixed at around $35.Pick Up FeeObviously, lugging a large container around bears greater costs than an LCL collection. This is around US$400 – 750 /20’DCPort Congestion FeeExpect around US$15 per shipment in port congestion fees. This surcharge from the lines covers losses from container congestion.The above are just a few examples of figures and are not set. These are however the costs you could work on if you’re supplier is telling you that it’ll cost thousands in FOB costs! Haulage fees will be based on the distance between your supplier and the port, so if you want to save… Try a supplier who neighbours a major port! Shippo; fob full form in export, fob meaning in shipping, meaning of fob, fob price meaning, fob (shipping), what does fob mean, trends Comparing FOB Shipping TermsFOB VS Ex Works Shipping TermsEx works shipping terms are another widely used incoterm. On these terms you as the importer are responsible for all costs from your supplier door, to your address in the UK. These are the second most commonly used term, and are another great way to ensure your import costs are transparent. Our shipping terms showdowns allow you to directly compare two shipping terms that can be used when importing cargo via sea freight to the UK. In this head-to-head we look at FOB and Ex Works shipping terms. FOB and Ex Works terms can both be used to ensure you know all of your costs from the start of the shipping process all the way up to receiving your goods. Ex Works terms leave all responsibility and risk in the hands of the buyer, whereas FOB terms split the responsibility down the middle. FOB Advantages
Ex Works Advantages
FOB Disadvantages
Ex Works Disadvantages
There are positives and negatives for both shipping terms and this showdown does not have a winner by knockout, it’s definitely a judge’s decision! At Shippo we believe FOB shipping terms are the advisable option for a first time importer shipping goods to the UK via sea freight. This is because both you and your supplier know what’s required of them from the outset and you can get a simple quote from us and your supplier that includes all you need. Ex Works can be almost as simple but there is slight uncertainty when you are negotiating with your supplier as to the exact export documents you’ll need to clear the goods through the local Customs. As a judge’s decision you may choose Exworks terms as the winner and if this is the case your shipment can be organised just as easily by us here at Shippo. Just give us a bit of extra time to establish the exact costs whilst our agent checks out the requirements in China, India, Taiwan or wherever your cargo is shipping from. FOB VS CIF/CFR Shipping TermsA common dilemma when importing cargo via sea freight into the UK is the question of which shipping term to use. CIF/CFR terms are also common shipping terms that your suppliers may offer. Quick note to avoid confusion: CIF and CFR terms are exactly the same, except that CIF comes with minimal marine insurance included whereas CFR doesn’t. CIF/CFR are Incoterms wherein your supplier is responsible for your goods until they reach the destination port. An example of this would be: if you were importing to Southampton Port, your supplier would be responsible for your goods until they reached Southampton. When using both CIF and CFR shipping terms the seller’s invoice includes the cost of the goods, and the freight to send them to the agreed country. The seller pays for everything up to and including the freight to a named destination port, the first charge to the buyer is the terminal handling at the destination port. Both CIF and CFR terms are used successfully by many shipping companies, importers and exporters but they are not without their risks. This is something we’ve seen many times! One of the largest risks of CIF is that it appears so easy – with FOB shipping terms, you’re fully aware that you’re importing and you’re actively a part of the process, but with CIF shipping terms it appears almost as simple as normal shipping. Your supplier is responsible for your goods for the most part – so you’ll only have to pay for customs and to get them delivered from the port, right? Wrong. When first-time importers ship using CIF, they are often caught with their trousers down because they aren’t aware of some of the essential steps in the importing process. One such thing we commonly see is the lack of an EORI number – many first time importers aren’t aware that you need an EORI number to be able to import to the UK, so when their goods arrive and they don’t have one . . . Well, they’re stuck, aren’t they? These terms can look appealing as your supplier may say that they can get your cargo to the UK port for less than to the Chinese port! Unfortunately, there’s no such thing as a free lunch (certainly not in the world of shipping) and you are likely to be hit with large hidden costs when the goods land in the UK. FOB Advantages
CIF Advantages
FOB Disadvantages
CIF Disadvantages
As with most shipping terms there are advantages and disadvantages, however some terms are better suited for different shipment types. For first time importers, it is important that your costs are managed and outlined from the get go. For this reason, FOB terms will almost certainly be the best option over CIF or CFR. Save The Benefits of FOB TermsOn FOB terms, all overseas responsibilities belong to the shipper (your supplier). Therefore, if there is a customs inspection due to a wrongful declaration it will be billed to the guilty party (the shipper/declarant) rather than you being hit with this cost. More seasoned exporters in the Far East will offer FOB shipping terms as standard. A quick search on sites like Alibaba show that sellers often show the “FOB Price” of their goods so everyone knows where they stand. If the seller isn’t offering FOB terms the buyer can ask for them. If you have to ask for FOB terms the seller will probably add an extra charge to the agreed sale price. This reflects their increased costs but will not increase your total shipping cost as it’s just shifting some costs from you to them. Shippo; fob meaning in export, fob shenzhen, fob delivery, free on board meaning, fob term, fob china, trends Additional FAQ’s asked and answered by ShippoWhat is the difference between FOB and CIF? The difference between FOB and CIF shipping is the point at which responsibility for the shipment is passed between the seller and the buyer. When shipping on FOB (Free On Board) shipping terms, the supplier pays all the costs in the country of origin and the buyer takes responsibility once the goods are on board the ship. CIF (Cost, Insurance, Freight) shipping terms means that the supplier gets the goods to the buyer’s destination country with insurance included before the responsibility is transferred to the buyer. Costs are easier to control on FOB terms. What is the difference between FOB and DDP? The difference between FOB and DDP shipping terms is who is controlling the shipment. On FOB (Free On Board) shipping terms the buyer is responsible for the shipment from the goods being loaded onto the ship in the country of origin. DDP (Delivered Duty Paid) terms mean the seller will deliver the shipment to the location requested by the buyer and pay all the destination country’s duties on the buyer’s behalf. DDP is generally more expensive as there’s more risk for the seller. (Click Question below to see our Answer) Whats fob? What is fob cost? What does fob shanghai mean? Who pays ens fee? FOB who pays for shipping? How does fob shipping work? For more information about Free on Board shipping call us now on 0203 384 0498 or use the chat facility above for a detailed explanation and advice on your shipping options. What is a shipper's responsibility when terms of purchase are FOB origin?FOB Add-on Terms
FOB Origin, Freight Prepaid: The seller/shipper pays the cost of shipping while the buyer/receiver of goods assumes the responsibility of goods at the point of origin. FOB Origin, Freight Collect: The buyer pays for freight and shipping costs and assumes full responsibility for the cargo.
Who is responsible for and FOB origin shipping?"FOB Origin" or FOB Shipping Point" means the buyer accepts the title of the goods at the shipment point and assumes all risk once the seller ships the product. The buyer is responsible if the goods are damaged or lost while in transit.
Who is responsible for FOB shipments?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.
Who is responsible for the freight costs when the terms are FOB shipping point?With FOB shipping point, the buyer pays for shipping costs, in addition to any damage during shipping. The buyer is the one who would file a claim for damages if needed, as the buyer holds the title and ownership of the goods.
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