FOB Shipping 101: What You Need to Know

Whether you ship locally or across the country, FOB and the terminology surrounding it has important implications for your business. To help you optimize your shipments, our guide will walk you through the basics of what FOB means and how you can navigate the liability, profitability, and risks.

Defining FOB

FOB stands for “free on board,” a term once used exclusively for ocean shipping. Today, it can be applied to any mode of freight transportation and is used as a designation to assign ownership of goods throughout the shipping process. Understanding who is liable for the product and at which point in the supply chain process is necessary to negotiate insurance, loading, transport, unloading, and other related costs necessary to move freight from the seller’s location to the buyer’s destination.

Designating liability through add-on terms

A variety of add-on terms provide more details about who assumes ownership of a product and when. Origin, destination, prepaid, and collect are a few of these terms.

Place of origin

This refers to the shipment’s point of origin, the place where a carrier picks up the product for delivery to a port, warehouse, or other destination that is part of the shipping process. When FOB is determined from the point of origin, the buyer carries the title and liability for the freight.

FOB origin example

Jim’s company purchases 15,000 glass jars from a company called Glass Corporation and the products are shipped via FOB Glass Corporation. This means the title passes to Jim’s company the moment the jars are taken by a carrier, so he cannot seek recourse from Glass Corporation for any damage that occurs during shipping.

FOB destination

Much like FOB Origin, FOB Destination refers to the point at which the buyer assumes responsibility for the shipping of purchased freight. In the case of FOB Destination, the seller is liable for the freight until it is delivered to and accepted by the buyer.

FOB destination example

Glass Corporation will hold the title for the freight until it reaches its destination, so Glass Corporation in this case is liable for damages that may occur when the freight is shipped to Jim’s company.

Prepaid

This indicates that the seller will pay for the cost of shipping. Using one of our examples, FOB Origin Freight Prepaid would mean that Glass Corporation pays for shipping while Jim’s company has the title and responsibility for the freight as soon as a carrier picks up the product from the point of origin.

Collect

In this case, the buyer pays for freight and its associated shipping costs. Using our examples, FOB Destination Freight Collect would mean that Jim’s company pays for the cost of shipping, but Glass Corporation remains liable for the shipment until it is delivered to his company.

Navigating FOB terminology can be complex even when shipping from within the US. Save time by receiving an instant quote from our online tool.