Yes, this contract term determines who has the burden of the cost for handling, transporting to the dock or shipping area and loading and can impact liquidation recovery.
It is important that the intended user of an appraisal containing a liquidation scenario has the correct understanding of FOB. Commonly referred to as “Free on Board” or “Freight on Board”, the precise meaning of FOB can vary significantly. The determination of FOB indicates who is ultimately responsible for certain costs and can also define the point in the transaction where the responsibility of the goods transfers from owner to buyer. There are two primary FOB definitions: as-is, where-is and as-is, FOB terms.
Selling an asset under an as-is, where-is term means the buyer is responsible for supplying the labor necessary to remove the assets from its current location to its final destination. This includes moving it from its original location to a docking area, if applicable, and into the transportation vehicle. Depending on the type and size of the asset, the buyer may be responsible for coordinating with a third-party rigging and transportation company. The as-is, where-is component requires the buyer to incur additional expenses above and beyond the price of the asset.
A sale with this scenario assumes that the assets sold would be transported from the original location to a docking area, not by the buyer, but by the owner or its designees. The buyer in this scenario would be responsible for arranging and financing the transportation from the dock to the asset’s final destination. The as-is, FOB terms component considers the expenses that would be incurred to transport the assets from its original location to the docking area, and those estimated expenses are included in the liquidation scenario of the appraisal report.
Remember, the FOB terms determine which party is ultimately responsible for the costs. If the seller is responsible, the liquidation scenario will be net the estimated expenses associated with transporting the assets to the docking area; if the buyer is responsible, the liquidation scenario may be discounted as the added costs will be a factor generally considered by the buyer. Any questions about FOB should be discussed with the appraiser preparing the report.
AccuVal provides a broad range of valuation, advisory and asset management solutions that contribute to growth or help ensure survival. We appraise the business enterprise and shareholder equity; bonds; intangibles and intellectual property; machinery and equipment; inventory; real estate and accounts receivables in over 100 industries worldwide. Learn more at www.accuval.net.