What Does F.O.B. Mean? (Part 1)

In my role at Transportation Insight, clients and prospects are constantly asking me the meaning of the acronym FOB. In fact, I recently visited a prominent shipper in the Northeast, and a high-level purchasing person actually called it fob (rhyming with “bob”). At that moment, I knew I needed to write an article to further explain how this often-misused term actually is defined.

First of all, F.O.B. stands for Free On Board and indicates the point in the supply chain where the seller relinquishes ownership and the buyer accepts ownership of products purchased in a specific transaction. Every vendor / client relationship should have the FOB terms specified in their PO purchase terms. Along with purchase terms, shipping terms are equally as critical. Identifying both terms will determine ownership, risk, and logistics cost.

Listed below is detail regarding domestic F.O.B terms and how they may impact your company:

F.O.B. Origin, Freight Collect:

“FOB Origin” refers to the legal fact that the buyer assumes title of the goods the moment the freight carrier picks up and signs the bill of lading at the origin pick-up location.

“Freight Collect” refers to the legal fact that the buyer is responsible for all freight charges. The buyer also assumes all risks of transportation, and therefore is responsible for filing claims in the case of loss or damage.

F.O.B. Origin, Freight Prepaid:

“Origin” refers to the legal fact that buyer takes ownership at the time of carrier pickup.

“Freight Prepaid” refers to the legal fact that the seller accepts responsibility for all freight charges and freight claims exposure.

F.O.B. Destination, Freight Collect:

“FOB Destination” refers to the legal fact the seller retains title and control of the goods until they are delivered. The seller selects the carrier and is responsible for the risk of transportation and filing claims in case of loss or damage.

“Freight collect” refers to the legal fact that the buyer is responsible for the freight charges.

F.O.B. Destination, Freight Prepaid:

“Destination” refers to the legal fact that the seller retains ownership until a claim free delivery is affected.
“Freight prepaid” refers to the legal fact that the seller is responsible for all freight charges.

Making sure the F.O.B. terms suit your company's needs is a powerful way to equip your organization to gain a competitive advantage in your day to day when shipping and accepting goods. Part two of this blog will further explore how F.O.B. terms can affect your company.

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