What are the advantages of FOB shipping? (2024)

FAQs

What are the advantages of FOB shipping? ›

The advantage for the buyer when purchasing under FOB Incoterms is they have the most control over the logistics and shipping costs, which allow them to choose their shipping methods. FOB allows the buyer to select their freight forwarder for the entire shipment.

The advantage for the buyer when purchasing under FOB Incoterms is they have the most control over the logistics and shipping costs, which allow them to choose their shipping methods. FOB allows the buyer to select their freight forwarder for the entire shipment.

Yet with FOB, the buyer has much more flexibility and control to choose the carrier and negotiate shipping rates, which can help reduce costs. CIF is used when goods are shipped to a specific destination port, whereas FOB is used when goods are shipped from a specific port of origin.

Buyers generally consider FOB agreements to be cheaper and more cost-effective. That's because they have more control over choosing shippers and insurance limits. CIF contracts, on the other hand, can be more expensive. Since the seller has more control, they may opt for a preferred shipper who may be more costly.

06 Who Assumes the Cost of FOB Shipping Point vs Destination? Traditionally with FOB shipping point, the seller pays the transportation cost and fees until the cargo is delivered to the port of origin. Once on the ship, the buyer is responsible financially for transportation costs, customs clearance, fees, and taxes.

The main disadvantage of FOB for the buyer is that they are responsible for any loss or damage that occurs during the transport, and they may face delays or extra charges at the destination port. The main advantage of FOB for the seller is that they have less risk and liability once the goods are loaded on the vessel.

Free on board (FOB) is a trade term that indicates whether the buyer or the seller is liable for goods lost, damaged, or destroyed during shipment. A free on board shipping point indicates that the buyer is responsible for loss or damage when the goods reach the shipper.

FOB Origin means the buyer assumes all risk once the seller ships the product. FOB Destination means the seller retains the risk of loss until the goods reach the buyer. FOB terms impact inventory, shipping, and insurance costs.

THC is paid on the terms of delivery agreed between buyer and seller in their export contract. If contract of terms of delivery is on FOB, CFR, CIF, CPT, DAP, DDU, DDP etc., the THC is paid by the shipper at load port. However the destination port THC need to be paid by the buyer under these types of delivery terms.

FOB and CIF are International Commerce Terms (Incoterms), which are legally binding shipping agreement models. FOB gives the buyer more control over the goods during transit but imposes more responsibilities. CIF provides the buyer with more peace of mind but is a more expensive option.

What is the reason for using the term FOB? ›

FOB is an acronym for “free on board” or “freight on board.” Understanding what FOB is is important as this term acts as a designation to signal that the liability and ownership of goods are being transferred from a seller to a purchaser.

Components of FOB

The costs associated with FOB include transportation of goods to the port, loading of goods, marine freight, insurance, unloading of goods at the destination port and transportation cost up to the final destination.

For the FOB Destination, the ownership exchange happens upon the successful delivery of goods at the buyer's place. Consider an example of a manufacturer in Detroit selling vehicle parts to a buyer in Los Angeles.

The FOB contract also allows the buyer to take ownership of the goods when the buyer drops them off in the container yard or hands them to the shipping company or carrier. Flexibility, simplified accounting and cost control are a few advantages of FOB shipping for global businesses.

Some states enforce a sales tax for items that are shipped by a seller. However, by simply implementing the concept of 'FOB Origin', the ownership is immediately transferred to the buyer and thus, the buyer no need to should any tax when the product is shipped.

Besides being extremely convenient especially when your hands are full when you need to lock and unlock the doors. A key fob is also used to control a car's trunk and windows. Some Fobs allow you to start the engine remotely and even allow you to activate a panic alarm, should if ever become necessary.

Also known as a hardware token, a key fob provides on-device, one-factor authentication to facilitate access to a system or device, such as a car, computer system, restricted area or room, mobile device, network service or other kind of keyless entry system.

Inconvenience for Users

Key fobs require users to carry them at all times, and if they forget to bring their fob, they may be unable to gain access to a building.