FOB shipping is a shipping term that many customers may encounter. It has both advantages and disadvantages. Only by clearly understanding this shipping term can he avoid being cheated and ensure the smooth importing from China.
It can be quite a tedious process when engaging in international trade, however for it to exist, there’s the need for freight standards that are universally acceptable worldwide despite the variances in trading laws from one nation to the next. Today we will be covering FOB shipping and providing further insight into it.
The definition of FOB shipping
FOB (Free-On-Board) Shipping is a shipping term that implies that the goods being shipped are recorded a complete sale, as soon as they leave the seller’s warehouse and on to the shipping vessel.
What this means basically is that the buyer owns the goods or products at that point and as such the costs of transportation are designated to the buyer as carriage inwards. It also means that if say damages are incurred in the process of shipment, the buyer must handle any compensation claims thereof because the goods are their responsibility.
The advantage of FOB shipping
There are quite a number of advantages for choosing this option.
1. The goods become the buyer’s as soon as they leave the seller’s warehouse, therefore, the seller will not be responsible for the shipping costs.
2. In the event of loss or damages during the transit of the goods beyond the seller’s selling point, the seller will not be held responsible.
3. Since the buyer assumes ownership of the goods as soon as they leave the selling point of the seller, they will be responsible for all the shipping documents and credentials required for the goods to be shipped, therefore the seller is alleviated of any tedious processes.
4. And in the event that the buyer defaults or withdraws the trading deal before the goods are hauled on the shipping vessel, the seller can recover the goods. And on the flip side, it also means that once the goods have been placed on the shipping vessel, the buyer cannot withdraw or default the deal because it would have already been closed.
The disadvantage of FOB shipping
1. If the seller was to discover a loss or damage disadvantageous to them while the goods are already on board the vessel, they cannot make any recoveries whatsoever and that would have a bad bearing for future trades with the buyer and is it would likely cause mistrust or adversely affect the reputation of the seller.
2. Despite not covering the costs beyond the selling point, the seller is not exempted from costs entirely because the seller still has to cover the customs clearance and terminal handling.
3. Because the seller is not dealing with each vendor at the origin, there’s a likelihood that the seller will incur more on the local charges for choosing the FOB shipping option.
When and when not choose FOB shipping (BUYERS AND SELLERS)
When it comes to shipping options, it’s not always that a particular option will be advantageous to you, so whether a buyer or a seller, you need to know the best times it is for you to choose this option.
For buyers, it is not ideal when you’re new to the world of shipping because a large degree of control is placed on the buyer. It is more ideal for the buyer when the buyer is a veteran or has some form of experience in shipping. This is because, with experience, buyers will come to learn that it is best when you have control over the shipment because that way, you’ll be in control of any agents involved, you can minimize costs by taking advantage of the tax incentives like lower VAT charges and you are in a position to bargain for lower commercial prices.
For the sellers, it is ideal at any time because the shipping costs and all the hassle of goods in transit is pinned on the buyer. But particularly if you are new to the world of shipping then FOB is the best option for you.
In foreign trade, FOB shipping is the most commonly used term, which is generally acceptable by both the buyer and the seller. For the seller, this is very ideal, but for the buyer, also need to pay attention to the process of use.
If you have more questions, please leave a message to us, we will deal with it as soon as possible. RunSourcing, the best China sourcing agent, 10 years of B2B purchasing experience.
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