International trade is very vital in the commercial sector since it helps the trading nations to benefit mutually from the transactions. The trade agreements between such buyers and sellers include various obligations on the part of the purchaser and the seller. These requirements include shipping costs as well as insurance costs both at the point of shipment and the destination point. It is therefore imperative for buyers and sellers to understand their obligations, roles, and risks they are likely to be subjected to if they choose this mode of doing business. This essay focuses on helping the purchasing agents to understand the concepts of Free On Board regarding shipment so as to make the right choices.
Free on Board Shipping Point and Free on Board Destination
Free on Board refers to the specifications on who between the buyer and the seller bears the costs, obligations, and risks that accompanies the delivery of goods from the seller to the buyer. This is very important considering that goods may pass through a lot of hurdles from the shipping point and destination point and this specification is important to reduce complications. Free on Board Shipping Point implies that the seller transfers the responsibility of handling the goods once they are placed on a delivery plane, ship or vehicle while Free on Board Destination implies that the seller only transfers this responsibility to the buyer only when the goods reach their destination (Malfliet, 2011). Therefore any risk that occurs in between transit is borne by the seller.
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The purchasing agent who is buying uninsured goods on FOB shipping point should know that it would be a risk since if anything should happen to those goods in transit, he will have massive losses considering he will be the ones to bear all risks from the point of delivery to the destination point. More so if anything should happen to those goods before they reach his goal he will not be compensated considering the goods are uninsured (Malfliet, 2011). The purchasing agent should consider buying the products on Free on Board destination to minimize the risks he could face if the goods got damaged or lost in transit since it will be the seller who will bear all the costs.
Importance of taking physical inventory when using a perpetual inventory system
Business enterprises and organizations need to take inventories of their businesses from time to time to establish some patterns in their selling behavior. While some businesses prefer periodic inventory systems, others prefer perpetual inventory system. Perpetual inventory system implies that purchases, purchases returns, sales, purchase discounts and sales returns are usually recognized immediately they happen in the inventory account to ensure the accuracy of the inventories (Burrow, 2012). This is, in turn, helps businesses to note spoilage, theft and any other loss. The periodic inventory system employs the use of physical count regularly to measure the cost of goods and the level of the inventory.
References
Burrow, J. L. (2012). Marketing, Copyright Update. Australia: Cengage Learning
Malfliet, J. (2011). Incoterms 2010 and the Mode of Transport: How to Choose the Right Term. Retrieved from http://www.cutn.sk/library/proceedings/mch_2011/editovane_prispevky/malfliet-163-179.pdf.
