How many of you know what FOB means? If you have shipped anything, you have probably see the FOB in your shipping documents. Even folks in the shipping industry familiar with freight shipping terminology often are confused as to the true meaning. The FOB Acronym Is an Important Term to Understand in Shipping Circles. We hope the following will you to understand the term FOB…
What Does FOB Mean In Shipping?
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 On Board – Free on board is the location where ownership of the merchandise transfers from seller to buyer. The seller pays the freight, and the buyer takes the title once it’s been shipped. FOB terms of sale establish which party (vendor or retailer) will be liable for the transportation costs, which party is in control of the movement of the goods, and when (date/time) the title passes to the buyer. In most cases, the freight hauler or delivery company (such as FedEx, UPS, Conway) is not involved, but in some instances, the freight hauler is liable as well. A freight hauler is always liable for the damage it may cause in transit, though. In international shipping FOB ( name of originating port) means that the seller is responsible for transportation of the goods to the port of shipment and the cot of loading. The buyer pays the cost of ocean freight, insurance, unloading and transportation from the arrival post to the final destination.
Freight On Board – Freight on board is another term that is often used in place of free on board but his is not an official term. FOB historically had referred to the transfer of title and liability between buyers and sellers of goods, and it was used solely for goods transported by ship. The term has been expanded since the days when sea commerce was the primary means of transporting goods, and the definition includes all types of transportation and can vary by country or legal jurisdiction.
How Is ‘FOB” Used In Shipping Documents?
The term is used in four different ways when it comes to freight shipping. These include…
“FOB Origin” means the buyer will assume the title of the goods as soon as the carrier/hauler picks up and signs for the shipment.
“Freight Collect” means the buyer is then responsible for all freight charges and is responsible for filing any necessary insurance claims.
If the terms include the phrase “FOB Destination, Freight Collect,” the seller has title and control over the shipment until it’s been delivered, and the buyer is responsible for freight charges.
If the terms include “FOB Destination, Freight Prepaid,” the seller retains ownership until delivery, provided there are no insurance claims. In this scenario, the seller is responsible for the freight charges.
Why Does FOB matter?
FOB is important for a number of reasons. but most importantly, shippers and carriers need to understand FOB designations in damage situations. It’s important to understand the specifics of the FOB terms so all parties know what is expected and who will be responsible for unforeseen charges and fees. It’s also important to consider your dating as well. Some vendors will offer longer terms for payment, but the start date is based on FOB date. This ultimately impacts the cost of goods.
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