Glossary
Free on Board (FOB)
Tags: Glossary
Contractual terms between a buyer and a seller define where title transfer takes place.
What is Free on Board (FOB)?
Free on Board (FOB) is a term commonly used in logistics to define the point at which the ownership of goods transfers from the seller to the buyer. It is an important concept to understand for anyone involved in the buying and selling of goods, as it determines the responsibilities and risks associated with the transportation of goods.
When goods are being transported from one location to another, it is crucial to establish who bears the responsibility for the goods at different stages of the journey. This is where the concept of FOB comes into play. FOB is a contractual term that specifies the location at which the title transfer occurs.
The term "Free on Board" indicates that the seller is responsible for the goods until they are loaded onto the transportation vessel at the specified location. Once the goods are loaded, the ownership and risk associated with the goods are transferred to the buyer. In other words, the seller is responsible for the goods until they are "on board" the transportation vessel.
The FOB term is typically followed by a specific location, such as FOB Origin or FOB Destination. FOB Origin means that the ownership transfers to the buyer at the point of origin, which is usually the seller's location. On the other hand, FOB Destination means that the ownership transfers to the buyer at the destination, which is typically the buyer's location.
Understanding the FOB terms is crucial for both buyers and sellers. For buyers, it is important to know at what point they assume responsibility for the goods and when they should arrange for transportation and insurance. For sellers, it is essential to determine their obligations and liabilities until the goods are loaded onto the transportation vessel.
It is worth noting that FOB only determines the point of title transfer and does not necessarily include the cost of transportation or insurance. These additional costs and responsibilities are usually negotiated separately between the buyer and the seller.
In conclusion, Free on Board (FOB) is a contractual term that defines the point at which the ownership of goods transfers from the seller to the buyer. It is an important concept in logistics, as it determines the responsibilities and risks associated with the transportation of goods. Understanding the FOB terms is crucial for both buyers and sellers to ensure a smooth and efficient supply chain process.