At the same time, even though the treadmills have not yet been delivered, the buyer has now officially taken responsibility for the goods. When at the shipping point, the buyer now has an open accounts payable balance though it also should now carry the treadmill on their financial records. The fact the the treadmills may take two weeks to arrive is irrelevant for this shipping agreement; the buyer will already possess ownership while the goods are in transit.
Our system tracks all packages sent via UPS, FedEx, and USPS —easy, fast, and accurately. Our system tracks all packages sent via UPS, FedEx, USPS, DHL, and Spee-Dee —easy, fast, and accurately. In the maps below, we compare the use of one fulfillment center in the continental United States with three fulfillment centers. The legend shows the color of each shipping zone, with red representing the closest and cheapest zone to ship to. Therefore, it’s no surprise that same-day shipping and delivery can only ship to the lowest zone(s). As this example demonstrates, both the shipping distance (measured by zones) and the order’s weight work together to impact the final shipping cost.
Transfer of Sale
Once the goods are delivered to the buyer’s specified location, the title of ownership of the goods transfers from the seller to the buyer. Consequently, the seller legally owns the goods and is responsible for the goods during the shipping process. If a package is sent nearby (e.g., Zone 1 or Zone 2), it will almost always arrive in fewer days than a package sent to a higher zone, like 7 or 8. Reducing time in transit is important, because slow shipping can cost you customers. With shipping, you may hear about the ship’s rail, and how costs or ownership transfer when it’s over the rail. That’s because the rail concept, as well as FOB, goes back to the early days of sailing ships.
In this comprehensive guide, you’ll find key insights into the nuts and bolts of FOB—from its basic meaning to its various designations like FOB shipping point and FOB destination. You’ll learn about freight prepaid options, when freight collect makes sense, and how these terms affect your bottom line and supply chain. Master the FOB terms, become savvy in international shipping, and take control of your shipping costs and responsibilities. To keep fulfillment costs and overall logistics costs down, you must effectively use zone shipping to your advantage. Learn how ShipBob helps ecommerce businesses do this by fulfilling orders from their network of fulfillment centers in the largest US cities to effectively reach customers. For example, the zone data below is based on ShipBob’s average standard US ground transit times (across all carriers), updated weekly from January 2020 through December 2021.
The Fine Print of FOB Shipping and Destination
The buyer is also able to delay ownership until the goods have been delivered to them, allowing them to do an initial inspection prior to physically accepting the goods to note any damages or concerns. Imagine the same situation as above except the terms of the agreement called for FOB destination. Instead of ownership transferring at the shipping point, the manufacturer retains ownership of the equipment until it is delivered to the buyer. Both parties to not enter the sale transaction into their general ledger until the goods have arrived to the buyer, and the seller retains risk of the goods while they are in transit.
- To find out more about other import and export terminology, check out FreightWaves Ratings so that you can stay as informed as possible.
- A shipping point generally refers to the location where goods begin their journey to the final destination.
- Each of these terms carries distinct implications for ownership, liability, and costs in the supply chain.
- Traditionally with FOB shipping point, the seller pays the transportation cost and fees until the cargo is delivered to the port of origin.
- The right logistics partner will process and fulfill orders more efficiently than a business self-fulfilling its orders, which gets orders out for shipping faster and reduces lead time.
- FOB pricing gives clarity about how much the buyer will pay before additional shipping costs.
If a shipment is sent FOB shipping point, the sale is considered complete as soon as the items are with the shipment carrier. At the same time, the buyer will record the goods as inventory, even though they’re yet to physically receive them. These terms, last updated by the International Chamber of Commerce (ICC) in 2020, encompass 11 internationally acknowledged Incoterms. These standards outline the respective responsibilities of buyers and sellers during export transactions. So, clarity in FOB terms ensures smoother transactions, accurate accounting, and effective management of the international shipping process.
