Question

in terms a non accountant major can get it what is the difference between Free on Board shipping point and Free on Board Destination? What is the pros and cons of a business using one or the other?

Answer 1

--Free on Board Shipping Point."

It means that the buyer takes delivery of goods being shipped to it by a supplieronce the goods leave the supplier's shipping dock. Since the buyer takes ownership at the point of departure from the supplier's shipping dock, the supplier should record a sale at that point.

The buyer should record an increase in its inventory at the same point (since the buyer is undertaking the risks and rewards of ownership, which occurs at the point of departure from the supplier's shipping dock). Also, under FOB shipping point terms, the buyer is responsible for the cost of shipping the product to its facility.

--FOB destination.

FOB destination is a contraction of the term "Free on Board Destination." The term means that the buyer takes delivery of goods being shipped to it by a supplier once the goods arrive at the buyer's receiving dock.

--difference between the two are-

1)FOB shipping point indicates that the title of goods is transferred from the seller to the buyer when the goods are placed on a delivery vehicle. Conversely, FOB destination indicates that the title of goods transfers from the seller to the buyer when the goods are delivered to the buyer's destination.

2)FOB shipping point transfers the title of the shipment of goods when the goods are placed at the shipping point, the legal title of those goods is transferred to the buyer. Therefore, the seller is not responsible for the goods during delivery.
Conversely, with FOB destination, the title of ownership is usually transferred at the buyer’s loading dock, post office box or office building. Once the goods are delivered to the buyer’s specified location, the title of ownership of the goods transfers from the seller to the buyer. Consequently, the seller legally owns the goods and is responsible for the goods during the shipping process.

pros and con's of using FOB shipping point method-

Pros:

Since seller handles everything at the origin, it basically means that you won’t have to worry about finding different vendors at the origin to take care of your cargo there. There are lots of steps involved in the process of getting your cargo to the port of origin, which includes export Customs, drayage, warehousing, documentation, etc, but you won’t have to worry about it if you choose to ship via FOB.

Cons:

Since you’re not dealing directly with each vendors at the origin, there is a chance that you’ll end up spending a little more on the local charges when you go through FOB. You can always try and look for your own origin agent who can handle all the origin procedures for you and it could probably save you some money .