FOB destination stands for free-on-board destination. It is a shipment term under which the seller bears the risk inherent in the goods until the goods reach the destination. He is normally liable to pay the shipment cost too.
If a sale or purchase is FOB destination, it is recorded only when the goods are delivered at the destination and never before. FOB shipping point is a shipment term that is opposite to FOB destination. In FOB shipping point, the seller transfers the risk at the moment he ships the goods.
Bloemen voor Alle is a Dutch business engaged in export of flowers. It received an order worth $50,000 from a Dubai real estate developer on 1 October 2012 and it was expected to ship the flowers by 15 October 2012. The customer expects the flowers to reach Dubai by 30 October 2012 and the purchase was FOB destination. The shipping cost amounted to $5,000. Some of the flowers were mishandled at Port Said. Bloemen voor Alle invoiced the Dubai real estate developer for the whole $50,000 but they agreed to pay only $40,000 because some of the flowers were damaged. Bloemen voor Alle intends to file a suit. What do you think are their chances of recovering the whole $50,000?
Since the shipment is FOB destination and destination is Dubai, Bloemen voor Alle has to bear the risks till the flowers reach destination. Since the flowers were damaged at Port Said before they could reach destination, Bloemen voor Alle has to bear the loss and it is very unlikely they will recover the full amount.
Written by Obaidullah Jan, ACA, CFA