How F.O.B Terms Can Affect Your Company (Part 2)

Failure to properly manage and assess risk regarding purchase and transportation terms can affect any company’s bottom line. I was recently visiting a distributor who receives many shipments from various vendors on a daily basis. He has a policy on his dock that personnel are to refuse any order that has the slightest sign of damage. His reasoning was that he does not want to deal with the hassle of filing a claim or deal with the process of ordering replacement parts for potential damages. So, he thought the best solution was to simply have his personnel refuse these shipments at the receiving dock.

Concerned about who had legal liability, the first thing I wanted to know was what the F.O.B. terms were with his vendors. As we discovered, the vendor who has the most refused shipments had the terms “F.O.B. Origin, Freight Prepaid.” This meant that although his vendor was paying the freight, the distributor owned the freight from the time the shipment was tendered to the carrier, and the responsibility of loss or damage legally lied with the receiver. So, by refusing these shipments, he was returning something that he actually owned.

In this case, the distributor was very fortunate in that his vendor had agreed to accept the goods back into inventory, although they had no legal obligation to do so. The company was grateful for the explanation of the terms and took steps to rectify the purchase terms for future orders to more clearly reflect the business relationship.

Having an advocate to review your agreements and explain your day-to-day business procedures to each of your vendors provides insight and clarity to all involved. Each department may not know what the other is doing in your organization but your logistics provider can facilitate the best transition of goods for your company.

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