What Does “FOB” (Free on Board) Shipping Really Mean?

There are many abbreviations in the shipping industry.   We see many of these abbreviations in shipping contracts that affect the method of payment, time and location of the delivery and who pays for the insurance.  FOB is one of those terms that you need to be aware of.

What Does “FOB” Mean?

FOB stands for “free on board” or “freight on board” and is a designation that is used to indicate when liability and ownership of goods is transferred from a seller to a buyer.

Free onboard indicates whether the seller or the buyer is liable for goods that are damaged or destroyed during shipping.  It also designates the party responsible for paying the freight costs and at what point the shipment transfers from the buyer to the seller.

FOB in Shipping Documents?

FOB is used in four different ways in shipping documents.

• Freight On Board (destination) – Freight Collect
• Freight On Board (destination) – Freight Prepaid
• FOB (shipping point) – Freight Collect
• FOB (shipping point) – Freight Prepaid

What is Destination and Shipping Point?

The difference between destination and shipping point is at what point the seller’s transfer ownership of the shipment to the buyer.

Destination means the legal title of ownership transfers when the shipment arrives at the buyer’s location.  The seller is liable for all the costs until the goods arrive at the destination and only records a sale when the shipment delivers to the buyer.

The shipping point is when the buyer owns the goods when the carrier picks it up from the seller and signs the bill of lading.  When the goods are on board the ship, the buyer assumes the related transport costs.  In addition to customs, taxes, and other fees.  The seller then records a sale and isn’t responsible for the goods anymore during delivery.

Who Pays the Shipping Costs?

There may be additional shipping costs and secondary charges that incur along the way.  Who is responsible for them?  This is where you need to understand the terms freight collect, and freight prepaid.

• Freight Collect – The person receiving the shipment is responsible for all freight charges. They also accept all risks and are responsible for filing claims if lost or damages.
• Freight Prepaid – The shipper accepts responsibility for all freight charges and risks.

The Importance of Understanding FOB

The biggest reason that you need to understand FOB is in damage situations.  Some receiving docks will refuse delivery of clearly damaged goods, rather than accept with a damage notation for a future claim against the carrier.  A shipment that is marked FOB technically belongs to the buyer or consignee at the time that it is shipped.  So, the consignee would be the one who owns it and bears the risk for it.  The seller has no reason to accept those goods back.

Questions about FOB or any Shipping Logistics?

If you are unsure about FOB or the best way to get your goods from destination to final origin, working with a knowledgeable third-party logistics provider will help.  Global logistics providers have extensive carrier networks.  They can help you get your goods where they need to go in a timely manner and for the most cost-effective price.  Giving you more time to focus on your business and less time worrying about shipping details.  Contact PPLUS to receive our “Best in Class” custom solutions for your global shipping needs.