If you’re a business professional, chances are you’ve heard the acronym “FOB” before. But, what does it actually mean? Let’s explore the definition of FOB and its consequences for businesses everywhere.
What Does FOB Mean?
FOB stands for “free on board,” and it is a term used in international business to distinguish between when the cost of goods and risk of damage to the goods in the shipping process transfers from the seller to the buyer. In other words, FOB is used to identify the point at which title of goods passes from the seller to the buyer.
Where Is the Point of Title Transfer?
The point of title transfer is often determined by the terms of the contract (e.g. FOB destination, FOB point of origin, etc.). For example, if the contract states FOB destination, the buyer would be responsible for the cost and risk of damage to the goods only after they reach the destination. Alternatively, if the contract states FOB point of origin, the buyer would be responsible for the cost and risk of damage to the goods from the point of origin.
What Consequences Follow Title Transfer?
When the cost and risk of damage to the goods passes from the seller to the buyer, certain consequences follow. The buyer must now take on all responsibility and costs associated with the goods. This includes any damages, losses, or delays in shipment. Furthermore, the buyer is obligated to pay for the goods and must also arrange for delivery of the goods to their desired destination.
The Takeaway
Understanding the definition and implications of FOB is critical for business professionals, as it determines whether the transfer of goods is from the seller to the buyer and who the associated costs and risks associated with those goods fall on. By taking the time to understand this term, businesses can ensure that they are clearly aware of their legal obligations.