FOB (Free On Board)
FOB, or ‘Free On Board‘, is a widely used term in international trade. FOB signifies that the cost of the goods includes delivery to a specific point by the seller, but not beyond that point.
The term FOB is always associated with a specific physical location, which is crucial for determining two key aspects: firstly, who is responsible for paying the freight charges and on what basis, and secondly, the exact point at which the ownership of the shipment transfers from the seller/supplier to the buyer/importer.
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Definition of FOB
In the UK, FOB (Free On Board) is frequently used for importing goods from countries such as China. Normally, under FOB shipping terms, the seller is responsible for all costs and risks involved up until the goods are on a vessel at the designated port. Once the goods have been loaded onto the vessel, it is typically the buyer’s responsibility to handle any costs and risks involved in the onward shipment.
FOB Incoterms
Incoterms relate to 11 different methods of carrying out international shipments, of which FOB is just one. The key aspect of FOB Incoterms is the point of risk transfer from the seller to the buyer.
Under the Incoterms, FOB specifically applies to sea and inland waterway transport. It is one of the most commonly used terms, particularly suitable for bulk and non-containerised cargo.
If you see a shipment with FOB on its label, then this will usually be accompanied by the name of the port through which the consignment was dispatched. It is typical, for example, for shippers to refer to ‘FOB Shenzhen’. All this really means, in FOB terms, is that the Incoterm used was freight on board and the goods were loaded onto a container vessel at the Chinese port of Shenzhen.
FOB Origin vs FOB Destination
Normally in the UK, when discussing FOB terms, you will often hear about ‘FOB Origin’. However, it is important to be aware of the distinction between ‘FOB Origin’ and ‘FOB Destination’ that dictate the point at which ownership and risk transfer from the seller to the buyer.
- FOB Origin: The moment the carrier signs the bill of lading, the buyer gains title and control of the goods. The buyer bears the risk of transportation and has the right to arrange the shipment’s route. Unless specified otherwise in the FOB clause, the buyer typically bears the freight charges.
- FOB Destination or FOB Shipping Point: The seller maintains title and control of the goods until they are delivered and the contract of carriage is fulfilled. The seller is responsible for choosing the carrier and bears the risk of transportation. Unless stated differently in the FOB clause, the seller is usually responsible for the freight charges.
FOB: Freight Prepaid vs Freight Collect
While FOB defines the point of ownership transfer, another critical layer in understanding international shipping comes in the form of Freight Prepaid vs Freight Collect.
When you define FOB shipping on prepaid terms, the supplier arranges and prepays for all transportation costs, from loading at the origin port to the delivery to delivery at your doorstep in the UK. In this scenario, British importers must be aware that these costs can often be inflated by the supplier, and the responsibility falls on the buyer to handle any unforeseen expenses that arise at the port of arrival.
On the other hand, under FOB Freight Collect terms, the supplier should bear all expenses and risks until the goods are loaded onto the shipping vessel. Once the goods are on board under typical circumstances, the importer is expected to take on responsibility for all ensuing costs and risks, such as sea freight, insurance, unloading, and transportation to the final destination. However, by arranging FOB shipping on Freight Collect with a freight forwarder, this process becomes more manageable. This approach offers the distinct advantage of knowing all costs upfront at the start of the transaction and ensures full control over the shipment. This is particularly significant in budgeting and risk assessment for British importers.
At Barrington Freight, we specialise in making your importing and exporting straightforward. From customs clearance to finding the right commodity codes, our expert team is here to assist. Don’t let the complexities of global trade hold you back. Reach out to Barrington Freight for efficient and reliable shipping solutions.
FOB vs CIF – A Practical Example
Many individuals question whether FOB (Free On Board) or CIF (Cost, Insurance, and Freight) terms are more advantageous for importing goods into the UK. Under CIF, it is the supplier who is responsible for the shipping process. It is a common practice for suppliers in China to offer appealing CIF shipping rates, but the reality is that the costs within the UK are usually much higher, with little room for negotiation for the importer.
They usually ship goods CIF to Felixstowe covering transportation to the port but leaving the UK importer with no control over the additional fees upon arrival. This situation often leads to inflated charges by the UK agent of the Chinese shipper, who retains control of the shipment until these fees are paid.
Examining an example of how FOB and CIF terms work can clarify why CIF might not always be as attractive as it initially appears.
Let’s say UK importer, A, wants to buy a carton of goods from Chinese supplier B and would like it delivered to their stockroom. Under CIF, B may tell A they can ship the goods to the UK for £50. This might seem attractive to A who’s been quoted a higher price for a FOB Freight Collect shipment service by their freight forwarder.
B then contacts a shipping agent C and does a deal, which means B can keep his price low. So, in this example, importer A goes along with supplier B’s proposal. However, when the goods arrive in the UK, they are now at the mercy of Agent C. The carton won’t necessarily make any progress from the shipyard to A’s warehouse.
A complains to B but B can legitimately say there is nothing he can do as it’s now in the hands of C. A might try to process the onward shipment from the port but themselves or get a freight forwarder to help but agent C is still in legal control of the consignment. In other words, C has A over a barrel.
In contrast, if A had initially arranged a FOB shipment with a fixed cost through a freight forwarder, the shipment would be handled by the forwarder’s selected agents in China, with the forwarder overseeing the entire process. A would pay a pre-agreed amount for the carton and its shipment, retaining full control over the costs. A could contact the freight forwarder at any time for updates on the carton’s location and expected delivery time. A could also use the forwarder’s tracking system to monitor the shipment.
Why Use Your Own Freight Forwarder for FOB Shipments?
When shipping goods under FOB (Free On Board) terms, it’s beneficial to use your own freight forwarder, like Barrington Freight.
- Control Over Shipping Process: You have more control over the shipping process, including the choice of carriers, routes, and transit times. This allows for better coordination and planning according to your specific requirements. As the seller does not engage their own forwarding or clearance agents, the entire cost structure can be determined upfront, offering clarity and predictability in financial planning.
- Cost Savings: By choosing your own freight forwarder, you can often negotiate better rates and terms. This includes not only potential overall cost reductions, but also the absence of hidden fees during UK customs clearance, and the elimination of additional costs for onward shipments.
- Improved Shipment Tracking and Updates: Choosing your own freight forwarder allows for enhanced tracking of your shipment. You can ask for regular updates and access detailed tracking information, ensuring a higher level of transparency and control over the shipping process. This capability is crucial for effectively managing schedules and expectations in complex logistics operations.
- Expertise and Experience: Freight forwarders are experts in the logistics field. They can handle complicated shipping requirements, provide advice on customs, tariffs, and documentation, and offer solutions for complex logistical challenges.
- Flexibility: Your own freight forwarder can offer more flexibility in terms of handling last-minute changes, customising services, and adapting to unexpected situations in the supply chain.
- Improved Communication: Direct communication with your freight forwarder can lead to better understanding and quicker resolution of issues, ensuring smoother operations.
- Risk Management: Your freight forwarder can help in identifying, managing, and mitigating risks associated with global shipping, such as delays, damage, or loss of goods.
- Accountability and Reliability: Having a dedicated freight forwarder means having a single point of accountability. This can improve the reliability of the shipping process, as the forwarder is committed to meeting your specific requirements.
If you are seeking a reliable and efficient freight forwarding solution for your FOB shipments, consider contacting Barrington Freight. Get in touch with us for a quotation and discover how we can offer a bespoke service that caters to your specific shipping requirements, with the advantage of cost savings, enhanced tracking, and personalised support.
We’re friendly, easy to work with, honest and we don’t charge the earth.
For advice and information on shipping time from China to the UK, call 01268 525444 or email us today.
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