FOB Price – How to Understand Freighting Jargon 2018
FOB Price Explained
To understand FOB Pricing, one must understand what FOB means. FOB is the short form for Free on Board (or Freight on Board) and translates to sellers including the cost of the product being delivered to the nearest port in the purchase price. However, buyer is liable to pay for the shipping costs from that port, and also any other fees associated with transporting the goods to their desired destination.
What’s the Difference?
Often the best way to fully understand a concept is to see its counterparts. As previously mentioned, when purchasing with FOB the buyer will pay for the transport. In contrast to this many contracts are EXW (Ex-Works) or Ex-Factory cost, or CIF/ CF:
- EXW = Pricing method in which the seller is required to make their product ready for collection at their place of business – any other transportation costs related to the buyer having the product in their hands are a liability of the buyer.
- CIF = Cost, Insurance, and Freight. The price of a contract which includes insurance and sea freight fees to the nearest port.
- CF = Cost and Freight. The price of a contract which includes sea freight costs but no insurance on the goods.
FOB Pricing Process:
- Suppose company X manufactures clothes and sells them to retail stores such as Topman or RiverIsland, If company X ships £10,000 worth of clothes to Topman under FOB shipping method, Company X is responsible for getting the goods safely to their port. After that, Topman would be liable.
Which one is for you?
While all three have their benefits and disadvantages, it really depends on your business and your approach to trade. For instance, if you are relatively new to overseas trade, perhaps FOB would be more helpful, as all the costs are upfront which would help your budgeting, also it is fairly simple for yourself.
If you are considering overseas trade and are struggling to find the right method, we recommend speaking to one of our finance experts who will be able to clear up any confusion you have. Take a look at one of our testimonies:
We were not sure how to ship goods and what terms to use. We spoke this through with Trade Finance Global as we also didn’t know what finance to use; whether we should use pre-export finance and pay within country, pay cash against documents and arrange shipping ourselves or pay when the product was sent to our home port and let the seller arrange shipping. Helping us to clarify this has allowed us to trade smoothly.
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