How to Handle F.O.B. Issues (Part 3)

A late shipment, a break down, a shipping slip filled out improperly – no matter what it is—a circumstance can arise to challenge the best working dynamic in logistics.  When an incident occurs in the shipping and receiving of goods, it seldom causes little to no disruption in the supply chain.  With that in mind, it is so important to have proper documentation, especially in regards to  F.O.B. terms. Purchasing and shipping terms are critical.  Identifying and understanding both terms in your supply chain operations will determine ownership, risk and logistics cost.

As a recap from the first posts on this blog series, please see below details 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. “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.
The bottom line is that it is important to pay attention to these F.O.B. terms. Being fully aware of the legal liability allows each party to respond accordingly. There are a lot of suppliers and vendors who try to do the right thing by their customer, regardless of what the F.O.B. terms are. But that doesn’t mean you should ignore what your F.O.B. terms are with your vendors and customers.

If you are a shipper, making sure the F.O.B. terms are clearly defined, understood, and are established to properly reflect the needs of the business relationship. You may want your customer to be “F.O.B. Origin” so they own the goods when they leave your door. Or you may want to own them until they are delivered intact. In fact, that is a great customer service selling point to your customers if that is the way you want to do it. The same holds true with companies that receive a lot of goods.

Knowledge is powerful, and having a great business relationship with your vendors can overcome multiple barriers. The personal relationship will provide flexibility for difficult situations.

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