Sellers and buyers need to draw up a detailed contract to outline their responsibilities during a shipment.
Shipments of goods are never as simple as just moving cargo from once place to another. Many factors go into a contract regarding a shipment transport, such as who pays for certain insurance and taxes, who takes responsibility for damaged cargo, and when exactly ownership of goods are transferred from a seller to a buyer.
What Does FOB Mean?
FOB is an abbreviation for either free-on-board or freight on board, which are both phrases that refer to a shipping purchase contract. Such contracts set the terms for who selects the carrier, who pays the freight charges and who has title to the goods during shipment. There are two types of contracts: shipment contracts and destination contracts. Shipment contracts usually pertain to FOB sellers while destination contracts are more relevant to FOB buyers.
FOB Buyer Responsibilities
A buyer pays for certain insurance and taxes related to a shipment of goods according to a contract agreed upon with the seller. In most cases, sellers will take responsibility for the integrity of a shipment until it leaves the loading dock, at which point responsibility is transferred to the buyer. However, this may vary depending on the terms agreed upon by both parties in the contract. In some cases of particularly large or important shipments, a buyer may request to negotiate shipping separately from the purchase of goods.
FOB Codes
When a buyer fills out a purchase order,bhe is required to enter certain FOB codes. These codes stipulate the freight terms which states which party is responsible for certain payments. For example, in FOB freight allowed destination contracts, the seller is responsible for freight charges and ownership of the goods in transit.
In this case, ownership is transferred to the buyer when the shipment reaches its destination. Meanwhile, for freight collect destination contracts, the buyer will pay the freight charges while the seller still retains ownership of the goods during transit.
Breach
If a buyer notices shortages or damages in a shipment, this is called a breach, and he can take steps to revert ownership of the goods back to the seller until the situation is resolved. When a buyer notices such a breach, he is also required to rightfully revoke acceptance, meaning he should tile a formal freight claim with the carrier and formally notify the seller in a timely fashion, which is usually within 14 days of receiving the shipment.
Proper, Timely and Rightful Revocation
If a buyer does not rightfully revoke acceptance of a shipment within a proper and timely manner, then ownership of the goods will still remain with the buyer. This means the buyer will still be responsible for making certain payments according to the contract.
Tags: meaning, buyer, ownership goods, destination contracts, freight charges, according contract, agreed upon, buyer notices, buyer will, certain insurance, certain insurance taxes, certain payments, during shipment, goods during
