The Ultimate Coffee Glossary

Free on Board (FOB)

Free on Board (FOB) Definition

The seller is obligated to provide the coffee to the vessel at the port in the country of origin. Any costs for transporting it from the processing facility or warehouses to the embarkation port must be paid for by the seller.
The customer agrees to arrange and pay for international shipping, insurance, as well as any cost associated with moving it from the port of arrival to its intended destination, such as customs fees and overland freight.

The most important points of Free on Board

  • Free on Board (FOB) is a term used to indicate when the ownership of goods transfers from buyer to seller and who is liable for goods damaged or destroyed during shipping.
  • Free on Board (FOB) is a term in international commercial law specifying at what point respective obligations, costs, and risks involved in the delivery of goods shift from the seller to the buyer under the Incoterms standard published by the International Chamber of Commerce.
  • FOB Origin means the buyer assumes all risk once the seller ships the product.
  • FOB Destination means the seller retains the risk of loss until the goods reach the buyer.
  • FOB terms can impact inventory, shipping, and insurance costs.

What Are the Pros and Cons of Using Free on Board?

The FOB point in the coffee supply chain is where the supplier and purchaser switch liability for coffee being transported. Coffee orders between suppliers and customers specify free on board terms and help determine ownership, risk, and transportation costs.
When purchasing FOB Origin or FOB Shipping Point, the buyer takes ownership of the product once it has been shipped and accepts all risks associated with shipping. The buyer is responsible for any damage or loss of the goods while in transit.
When an item is sold FOB Destination, the seller retains ownership of the item and is responsible for it until it reaches the buyer.

When looking at Free on Board (FOB) pricing, you must first understand how the pricing works.

There are several different types of shipping for coffee, both domestic and international. When ordering or signing a contract for shipping coffee, the time and place of delivery, payment, when the risk of loss shifts from the seller to the buyer, and whether the buyer or seller pays the freight and insurance costs should all be described.
The FOB status is defined in the purchase order, and it defines which party is responsible for shipping the product, whether at the Origin, where shipping begins, or at the Destination, where shipping ends. Ownership is determined in the bill of sale or agreement between the buyer and seller, not in the FOB status.
Parties should have a firm grasp of free on board (FOB) to ensure a smooth transfer of goods from the vendor to the client. Whether that transfer occurs domestically or internationally, FOB terms can impact inventory, shipping, and insurance costs.

Whether it is better to source from the origin or destination is the question.

The buyer will receive the goods' title when shipment begins at FOB origin or shipping point. Once the items are delivered to a shipment carrier, the seller is no longer responsible for them, and the buyer must ensure that they reach their final destination on time and undamaged.
The seller retains ownership of the goods until the goods have reached their final destination for FOB destination.
There are established and detailed provisions in international contracts, particularly for roasters ordering large quantities of coffee for global shipping on vessels and containers, concerning delivery date and location, payment terms, and FOB designation to establish when risk of loss shifts from the seller to the buyer and which party bears the cost of freight and insurance.
Incoterms, a publication of the International Chamber of Commerce (ICC), are the most common international trade terms, but U.S. firms that ship goods must follow the Uniform Commercial Code (UCC).
It is necessary for parties to a contract to specify which jurisdiction's laws are being used if there are several sets of rules or if the legal definitions of FOB differ from one country to another.

How does FOB pricing work?

There are several expenses involved in delivering goods FOB, including shipping the items to the port of departure, transporting them aboard the shipping vessel, freight transport, insurance, and unloading and transporting them from the arrival port to the final location.

Who pays for the freight on an FOB origin?

The buyer pays for freight if the terms include "FOB origin, freight collect." If the terms include "FOB origin, freight prepaid," the buyer assumes responsibility for the goods at the point of origin, but the seller pays for shipping.

What Are the Differences Between FOB and CIF?

CIF (Cost, Insurance, and Freight) and FOB (Free on Board) are two commonly used INCOTERM agreements. Each vendor-client contract determines whether FOB signifies that liability is transferred from the seller to the buyer when the shipment reaches the port or other facility designated as the starting point, or whether CIF requires the seller to pay costs and assume liability until the goods reach the destination port.

Free on board (FOB) Summary

Free on Board (FOB) is a shipment term that defines the point in the supply chain when a buyer or seller assumes responsibility for the goods being transported. FOB terms like FOB Origin and FOB Destination help define ownership, risk, and transportation costs for both buyers and sellers.
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