On the flipside, the buyer must note in its accounting system that it has inventory on its way. That inventory is now an asset on the buyer’s books, even though the shipment has not arrived yet. Alternatively, the buyer can choose FOB Destination and allow the seller to handle the shipping. Furthermore, relative to other Incoterms available, there are added steps with FOB.
- This means that the seller is responsible for loading the cargo into the cabin and bears the shipping costs including trimming fees.
- On the other hand, UD pricing is usually the strategic choice in the real world markets of fruits, vegetables and raw milk.
- (5) Local fees, This usually refers to some regular local fees charged by the shipping company, such as THC, booking fee, document fee, S/O, EDI, telex fee, demurrage fee, storage fee, etc.
- This means that no matter where you ship from, you will encounter the same regulations.
- FOB Incoterms are also the most cost-effective option, as it allows the buyer to shop for the best possible shipping rate.
For the buyer, there are potential situations where they might be responsible for covering costs before the goods are on board the vessel. For example, if loose cargo is shipped (i.e., not a full container load), goods must go through a Container Freight Station to be consolidated into one container. Typically, sellers won’t cover these costs unless explicitly stated in the sales contract.
FOB Add-on Terms
After the free period stipulated by the port is exceeded, expensive demurrage will be charged (provided that the consignee still needs the goods). If no one picks up the goods after a certain period of time, the goods will be confiscated or destroyed by the government at the port of destination. 5）The supplier copies the shipping documents to the recipient so that the recipient can pay the balance of the order in time. After receiving the balance, the supplier expresses the shipping documents to the consignee for customs clearance and pickup. The seller must bear his own risks and expenses, obtain any export license or other official permits, and go through all customs procedures required for exporting goods when customs procedures are required.
Which is better CIF or FOB?
Simply put, on the whole it's recommended that buyers use FOB, and sellers use CIF. FOB provides greater control and saves buyers money, but CIF helps sellers maintain a higher profit. The caveat being that new buyers would be better advised to use CIF until they get accustomed to the import process.
The Chinese translation of the CIF term is cost plus insurance plus freight. According to general international trade practices, the amount of insurance insured by the seller should be added to the CIF price by 10%. If the buyer and the seller do not agree on the specific insurance, the seller only needs to obtain the minimum insurance.
Free-on-board and uniform delivery pricing strategies in a mixed duopsony
Following Zhang and Sexton (2001), the work by Fousekis (2011a) considers the FOB and UD strategic pricing choices but in a mixed duopsony market where spatial competition takes place between a profit maximizing IOF and a welfare maximizing COOP. The results reveal that UD (FOB) pricing will be chosen by both competitors in markets where transportation costs are small (large) relative to the net value of the primary product. A mixed FOB (COOP)– UD (IOF) pricing is the Nash equilibrium of the game for intermediate market structures. In the third study, Fousekis (2011b) analyzes FOB and UD pricing policies in a pure duopsony spatial market where competition takes place between two welfare maximizing COOPs.
The IOF(s) and the consumer COOP(s) provide the same physical good or service to consumers. We set up a two stage game similar to Kats and Thisse (1993) but we relax the assumption of perfectly inelastic demand since it can bias the results in favor of UD pricing. The present article assumes a linear demand function with a unitary (negative) slope. Furthermore, we borrow elements, very crucial to the analysis, from Zhang and Sexton (2001) and from Fousekis (2011a). We employ Hotelling-Smithies conjectures which is the spatial analogue of Bertrand-type competition.3 Under this behavior, each firm assumes that the prices of the competitors are fixed.
Does FOB include customs clearance?
International shipments typically use “FOB” as defined by the Incoterms standards, where it always stands for “Free On Board”. Domestic shipments within the United States or Canada often use a different meaning, specific to North America, which is inconsistent with the Incoterms standards. https://cryptolisting.org/blog/what-are-the-costs-for-free-on-board When the ship’s rail serves no practical purpose, such as in the case of roll-on/roll-off or container traffic, the FCA term is more appropriate to use. The purpose of establishing Incoterms, such as FOB and CFR, was to facilitate trade by providing standard contract terms.
The cases where the IOF and the COOP are spatial monopolists are also reported. Use of this rule is restricted to goods transported by sea or inland waterway. Once the buyer has the right to decide when to ship the goods and/or the port of destination, the buyer must give the seller sufficient notice. According to the above explanation, under the FOB contract, either the buyer or the seller meets the conditions of being a shipper.
The Original Freebord
The handling fee refers to the cost of resettlement and rearrangement after the cargo is held. But it was the buyer who concluded the contract of carriage with the carrier, and it was logical for the buyer as the shipper. In addition, modifying the letter of credit, for this reason, would increase expenses and delay the shipment, so the seller did so. The bill of lading submitted after delivery indicates that the buyer is the shipper. However, due to discrepancies in the documents, the bank refused to pay and refunded the bill. According to the FOB transaction, the buyer is responsible for dispatching to receive the goods.
The shipper is, thus, free of responsibility once the goods are on board the ship. FOB destination, on the other hand, transfers the ownership of the goods at the delivery point with the seller traditionally paying for the shipping expenses. Since the ownership of the goods doesn’t transfer to the buyer until the goods arrive at the delivery point, the risk of loss during transit is on the seller.
NatGas Price Data
Simply put, an incoterm is the standard contract used to define responsibility and liability for the shipment of goods. It plainly lays out how far along into the process the supplier will ensure that your goods are moved and at what point the buyer takes over the shipment process. The supplier is only responsible for providing transportation of the goods sold to a designated main shipping origin point. This point is typically a port, since Incoterms are most commonly used for international trade where goods are transported by sea. FOB shipping point transfers the goods to the buyer at the point the goods are loaded into the truck or the shipping point.
- In the light of the preceding, the objective of this work is to determine the equilibrium FOB/UD pricing strategies in pure (IOF vs IOF and COOP vs COOP) and mixed (IOF vs COOP) spatial duopolies.
- On the way to Jeff’s factory, the trucker gets into an accident and the parts are ruined.
- 4 By choosing your own FOB forwarder, buyers can understand the progress of the goods faster, the latest prices, the most favorable prices, fast communication, and efficient logistics operations.
What is FCA vs FOB pricing?
Under FOB, the seller is responsible for loading the cargo onto the vessel, but with FCA, it is the buyer's responsibility. FCA transfer risk takes place at an agreed-upon point, whereas with FOB, the buyer assumes the risk on the vessel.