What is the full form of FOB
FOB: Free on Board
FOB stands for Free on Board. It is a term associated with shipping of goods from one place to another. It indicates that the price quoted by the seller includes the charges of transferring goods from the production unit to a ship at a port as mentioned by the buyer. FOB is used in non-containerized sea freight.
Type of FOB Contract
1) FOB Destination
It is the standard and commonly used FOB contract. It indicates that the seller is the owner of goods until the goods are placed on the ship as mentioned by the buyer and the seller is responsible for damage or loss during transport. Once the goods reach the destination the buyer becomes the owner of goods and thereafter the buyer is responsible for any loss or damage.
2) FOB Origin
When there is no FOB term or language discussed in the purchase contract then as per the guidelines of Uniform Commercial Code (UCC) the purchase contract will be treated as a FOB Origin contract. It makes the buyer the owner of the goods at the time and place the goods originate in the production unit. In this contract, the buyer is responsible for the loss or damage during transport not the seller.
How it Works
Let us understand it with the following example:
Suppose you a dry-fruits dealer 'ABC' and you ordered 1000 jars of almonds from a company 'XYZ' established at Himachal Pradesh in India. You sell the dry fruits at your store in New Delhi. If your purchase contract includes "FOB Destination" New Delhi, ABC warehouse" this means the company 'XYZ' will pay the transportation charges to ship the 1000 jars of almonds from its unit in Himachal Pradesh to your warehouse in New Delhi. The jars will become your property after arriving at your warehouse; it means if the jars are lost, damaged or stolen during transportation, the company XYZ is liable because it still owns the goods until goods reach the destination. Likewise, if the goods are damaged or lost after arriving at your warehouse, you will be legally responsible for the loss.