Definition Definition

What Is Fob Destination? Understanding Fob Destination with Practical Example

What is FOB Destination?

FOB Destination indicates that items are properly delivered to the customer, the seller passes title to the buyer under a number of contractual conditions. It implies that the firm holds legal claims to the items until they arrive at the purchaser's address.

Understanding FOB Destination

What is FOB?

The full form of FOB is “Freight On Board” or “Free On Board” which is an exclusive term used in shipping terms and it entails who is to be held liable for goods damaged during shipment. Two confusing term regarding FOB is explained below -

FOB Shipping Point

FOB Shipping Point means that the seller places the goods free on board the carrier, and the buyer pays the freight costs.

FOB Destination

FOB Destination means that the seller places the goods free on board to the buyer’s place of business, and the seller pays the freight. 

When shipping items reach the buyer's selected delivery point the buyer's packing port, sorting office address, or office building—the customer receives ownership of the product. The legal title to the products passes from the seller to the buyer as soon as the package arrives at the purchaser's delivery address. 

This ensures that throughout the shipping procedure, the seller is the legal owner of the items. If something occurs to the products while they are at the distribution centre, the seller remains legally accountable for the products.

The more frequently a firm purchases goods, the greater transportation and insurance charges it bears, based on the FOB terms. When completing an inventory order, businesses may face expenses such as the cost of employing workers to unpack the products and the cost of renting storage to keep the products. Detailed inventory costs can be minimized by purchasing mass amounts and lowering the set of possible shipments it receives.

Practical Example

To upgrade its present point of sale system, David's telecom company ordered multiple PCs from Asus. David places an order with them and it’s covered by the FOB destination conditions. The order is received by Asus who then packs the PCs and delivers them to the delivery department, where they will be stacked onto pickups. The vehicle smashes halfway to David's office, destroying the majority of the shipment.

Asus (the vendor) is accountable for the items during the transportation procedure because the products were not shipped to David, Asus is completely liable for the device damages and must submit a case with its insurance provider.

In Sentences

  • The term FOB Destination indicates that the seller is responsible for delivering the products to a certain location.


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