A pepper dealer buys 20,000 tons of pepper from fob price meaning ABC in India to sell them at its store situated in London. The purchase contract says, “FOB destination, London, XYZ warehouse,”. It means, that Company ABC would pay the loading and shipping expenses to send 20,000 tons from its Indian factory to XYZ warehouse in London. Hence Value of Goods is the transaction value i.e. in case of export of goods under CIF contracts, the actual price paid by the recipient to the supplier for the said supply, which in CIF contracts includes freight and insurance. The seller or exporter controls the supply chain after paying customs clearance for export. Seller or Exporter select the carrier and pay the expenses up to the destination.

They have been incorporated in contracts for the sale of goods worldwide and provide rules and guidance to importers, exporters, lawyers, transporters, insurers and students of international trade. FOB specifies which party is responsible for paying the freight charges and other transportation costs. The buyer or importer supports the risks of damages or loss, as goods are given to the first carrier. The buyer has to pay customs clearance and unloading charges. This Term involves insurance with FOB price and ocean freight. The marine insurance is obtained by the exporter at his cost against the risk of loss or damage to the goods during the carriage.

The primary condition of using FOB in import-export is that the importer has an option to negotiate prices for freight services. When it comes to FOB destinations, who pays for the freight can be a bit of a tricky question. In general, the party who contracts with the carrier will pay the freight charges. However, there are some cases where the seller may agree to pay the freight charges as part of the sale.

The importers and exporters are suggested to use the latest version. In the case of a FOB destination, the ownership of the product is transferred from the seller to the buyer only upon receipt of goods at the buyer’s place. This term may be used irrespective of the mode of transport including multimodal transport. This term may be used irrespective of the mode of transport, including multimodal transport.

FREE ON BOARD / FREIGHT ON BOARD (FOB) definition and meaning

I am hugely indebted to you for your websit, as I have taken a majority of my learning in the import export business from there. Thanks a lot for your knowledge Sharing-You truly are a treasure house of knowledge on Import and export. Sir, I would need a reference for a CA in Mumbai as I plan to set up a small import export business in Mumbai. Hello sir, Very nice article you wrote, can you please explain me that if i want to purchase products from china mainland of 10$ via fob what will be the charges levied reaching to my destination in madhya pradesh. Dear Sir, We have purchase some material from singapore on FOB basis.I read your above article in that you said that on FOB basis seller only pay Transportation, THC,& custom clearance. Who will bear charge of BL,COO, & other relates documents.Please clarify.

The parties agree to use FOB origin, which means that the ownership of the goods will be transferred from Company A to Company B at the point of origin (i.e., the factory in China). The value of FOB is usually set by importers who have a fair idea about the costs involved in international trade. Importers have shipping agents at ports where goods are expected to arrive. The exporter is expected to send goods to the destined delivery port and then, it is considered that they have been delivered to the importer.

A randomly generated access code is shown on the key FOB, which changes every 30 to 60 seconds. Users will first authenticate themselves on the key FOB with a personal identification number , followed by the current code displayed on the device. Suppose you purchase from a supplier in China and agree to FOB shipping conditions. The supplier is responsible for the subsequent three phases of the process.

“FAS”- Free Alongside Ship

To distribute between the seller and the buyer the logistic and administrative expenses at the various stages of the process. Also, make sure that you have included all the important clauses in your agreement before signing and finalizing. There are similarities and differences between several different terms and we understood the difference between FOB and CIF. Here is a list of important clauses that you don’t want to miss while drafting your FOB contract. Let’s try to understand the difference between FOB and CIF; we have listed some points down below.

In the given example, the seller is loading the vessel on port x and his job is done. However, if the arrangement was such that the seller needs to transport the goods to port y then it would be called as “FOB destination”. B. K. Wadeyar v M/S Daulatram Rameshwarlal , the respondent firm claimed sales tax exemption under Article 286 of the Indian Constitution in respect of sales made by them, on the ground that sales were made on FOB basis. According to that FOB they continued to be the owners till those cross the customs barriers and entered the export stream. The court exempted the respondents from payment of tax under Article 286 on the ground that the goods remained the seller’s property till those had been brought and loaded on board the ship. If you make your shipping payment via a bank, the exchange rate used to convert the payment may be marked up by 3-5%, which is a hidden fee you end up paying.

• This option is often used when shipping low-value items or when the shipper has a good relationship with the receiver.
• Shipping documents and the valid invoice has to be furnished by the seller.
• Freight, unloading costs, and the price as quoted in the contract has to be paid by the buyer.
• It creates confusion for contractual stakeholders in the event of a dispute.

The key FOB full form comes from the fact that a key FOB is supposed to be small enough to be carried around invisibly like a key chain. How would I export herbal medicines to other countries from India to USA? I wanna know about this mail what is asked by my client, I’m mentioning below sample mail what sent to me by my client. While not writing, you can catch me singing Shāstriya Sangeetha and tuning my violin ;).

FOB Shipping Point Cost

Incoterms 2000 define the respective roles of the buyer and seller in the agreement of transportation and other responsibilities and clarify when the ownership of the merchandise takes place. These terms are incorporated into export-import sales agreements and contracts worldwide and are a necessary part of foreign trade. The term FOB destination in the shipping industry means that the seller pays for transportation of the goods to the buyer, but the risk of loss or damage to the goods transfers to the buyer once the goods are delivered.

If you’re not sure who is responsible for paying the freight charges, it’s best to check with your contract or the seller. There is no absolute answer to this question and those who are working together will decide on the terms and responsibility. Of course, when someone takes responsibility for these charges they will consider the costs in pricing.

“CFR”- Cost  And Freight

The cost and the risk involved in the FOB shipment is transferred to the buyer when goods are on board safely at a shipping port. Basically, the term FOB tells about who will be the bearer of the damaged goods during the transit as well as for the cost of freight and insurance. As per my 6 years sales experience in custom plastic injection molding industry, the liability depends on the trade terms. If FOB or CIF, once the cargo pass the edge of the harbor of loading port, the supplier is no longer liable, but they should be responsible for the basic quality. Not liable should be they can not guarantee if the cargo can arrive safely, or they will be stolen? Or some disasters happen that no one can control or expect…

In this situation, working with a third-party logistics provider who has expertise in all incoterms is a wise step. Under freight collection, a buyer bears the full responsibility of freight charges once goods are received. Under the FOB shipping terms, buyers do not need to pay the higher fees for goods protection plans.

A username and a PIN/password combination are the most typical security measures, however, others merely require a specific key or smart card. Two-factor identification, on the other hand, necessitates both, requiring the user to provide both their personal identifying credentials and the related security equipment, in this case, a key FOB. ” can be interpreted in four ways when it comes to a freight shipment. ” refers to transferring obligation products from a vendor to a customer.

Thus, make sure you understand everything written in the contract before signing it. The main difference between the two is the claimant of the insurance. In case of FOB destination, the cost of insurance is borne by the seller and in case the goods are damaged in the course of transportation, the seller himself can claim the insurance. While in case of CIF, even if the cost of insurance is borne by the seller, it can be claimed by the buyer.

The International Chamber of Commerce produces Incoterms, the most prevalent international trade terminology. Because there are several sets of regulations, and legal definitions of FOB vary from nation to country, the parties to a contract must specify which set of rules will apply to a shipment. FOB value is generally selected by buyers who are familiar with international trade.

In case of FOB contracts, the goods are delivered free onboard the ship. Once the seller has placed the goods on board, the responsibility of the seller ceases and the delivery of the goods to the buyer is complete. The goods from that stage onwards are at the risk of the buyer. Boxnbiz is a top international digital freight forwarding company in India, offering air freight, ocean freight & customs clearance services. It is advised to go with the FOB option for shipping as the buyer gets control over the shipping process and the costs are comparatively cheaper. Whereas in CIF shipping, since the seller has the authority over shipping charges and arranging a ship with the help of a freight forwarder, the cost is higher.

If the buyer nominates a person other than a carrier to receive the goods, the seller is deemed to have fulfilled his obligation to deliver the goods when they are delivered to that person. FOB terms can be used with any type of goods, including physical goods and intangible goods such as intellectual property. However, the use of FOB terms may be more common in certain industries, such as the shipping and manufacturing industries. FOB can be used in a variety of different contexts, including when goods are being shipped by sea, air, or land. Used where the seller can arrange some transport within his/her own country.

When transporting loose cargo (i.e., not a full container), your items must be consolidated into a container at a Container Freight Station . Under FOB Incoterms, it is the buyer who is always responsible for the freight cost. Sellers also welcome FOB Incoterms because as soon as the cargo is out of factory, they can deem the trade complete. How to identify the steps in enrolment process of a tax payer at the GST common portal.

CIF- Cost, Insurance & Freight i.e. value of goods at the time of delivery to recipient’s port – which includes the cost of transportation and insurance. This term is similar to Carriage Paid To but the seller has to arrange and pay for the insurance against the risk or loss or damage of the goods during the shipment. The buyer indicates the ship and pays freight, transfer expenses and risks is done when the goods passes or forwarding to the buyers warehouse by rail or ship. Marine Insurance is a type of insurance policy that provides coverage against any damage/loss caused to cargo vessels, ships, terminals, etc. in which the goods are transported from one point of origin to another. It means you have to pay all the transportation charges for goods from your warehouse to Delhi airport and customs clearance charges in Delhi.

Clear can also help you in getting your business registered for Goods & Services Tax Law. Collect- The transportation charges are collected from the buyer. Whilst the EXW term represents the minimum obligation for the seller , DDP represents the maximum obligation. This term should not be used if the seller is unable directly or indirectly to obtain the import license.