FOB destination

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FOB destination
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FOB destination - (Free on Board Destination) is a shipping term that means that the legal title to the goods remains with the seller until the goods reach the location of the buyer. Terms announcing that the seller will acquire the delivery expense to get the goods to the destination. With terms of FOB destination, the title to the goods usually passes from the seller to the buyer at the destination. This means that goods in shipment should be reported as inventory by the seller since technically the sale does not occur until the goods reach the destination. The location where the actual sale of goods occurs and ownership changes hand from the seller to the buyer. This is important for the accounts, as it dictates when the amounts are entered in the records. Generalize FOB destination means that goods are shipped to their destination without charge to the buyer; the seller is responsible for paying the freight charges[1][2][3][4][5].

The term Free On Board - FOB is the Incoterm of F's group, it means that sellers obligated to provide issues connected with delivery commodities to the carrier; the term is used with an identified physical location to determine, the responsibility and basis for payment of freight charges, and the point at which title for the shipment passes from the seller to the buyer[6].

Variations of FOB destination

FOB Destination Unless qualified in the FOB clause, the seller is responsible for freight charges. Division the types of FOB destination has been created to divide between the seller and the buyers issues connected with owning the goods and paying the charges. There are four variations on FOB destination terms[7][8][9][10]:

  • FOB Destination, Freight Collect - the buyer pays and bears the freight charges; the buyer pays the freight charges at the time of receipt, though the supplier still owns the goods while they are in transit; seller incurs freight charges, and buyer initially pays freight charges; „ownership of the goods is transferred when the goods reach destination or the buyer’s place; While the goods are in transit, the seller is still the owner who should carry freight-out in his books”
  • FOB Destination, Freight Prepaid and Allowed - the seller pays and bears the freight charges; the seller pays and bears the freight charges and owns the goods while they are in shipment; title passes at the buyer's location
  • FOB Destination, Freight Collect and Allowed - the buyer pays freight charges and deducts the amount from Seller's invoice; the buyer pays for the freight costs but deducts the cost from the supplier's invoice; the seller still owns the goods while they are in shipment
  • FOB Destination, Freight Prepaid and Add - the seller pays the freight and adds the freight charges to its invoice to the buyer; the seller pays the freight charges but bills them to the customer; the seller owns the goods while they are in transit; title passes at the buyer's location
Names Pays freight charges Bears freight charges Owns goods in transit Files claims (if any)
FOB Destination, Freight Collect Buyer Buyer Seller Seller
FOB Destination, Freight Prepaid Seller Seller Seller Seller
FOB Destination, Freight Collect & Allow Buyer (and deducts freight charges from invoice) Seller Seller Seller
FOB Destination freight prepaid and Add Seller (and deducts freight charges from invoice) Buyer Seller Seller

Footnotes

  1. McDonald S.,(2009)
  2. FAR, (1987), p. 755, 768
  3. Collier M., (2017), p.92
  4. Prokop D., (2014), p.5
  5. Rex Bookstore, (1994), p.44
  6. Hinkelman E.G., (2010), p.81
  7. McDonald S.,(2009)
  8. Collier M., (2017), p.92
  9. Prokop D., (2014), p.5
  10. Rex Bookstore, (1994), p.47

References

Author: Natalia Zajko