What Does FOB Mean in Shipping?

If you’re a small business owner navigating the world of shipping, you’ve likely come across the term “FOB” in your shipping documents. But what does it actually mean? Let’s break it down in a way that’s easy to understand.

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.

Understanding FOB is crucial for small businesses as it affects who is responsible for the goods at different stages of the shipping journey.

What is FOB?

FOB stands for “Free On Board” or “Freight On Board.” This term is used to indicate when liability and ownership of goods is transferred from a seller to a buyer.

• Free on Board defined: Free on board indicates whether the seller or the buyer is liable for goods that are damaged or destroyed during shipping. When used with an identified physical location, the designation determines which party has responsibility for the payment of the freight charges and at what point title for the shipment passes from the seller to the buyer.
• Freight on Board is another term that is often used in place of free on board. It’s worth noting, this is not an official freight term.

In international shipping, for example, “FOB [name of originating port]” means that the seller (consignor) is responsible for transportation of the goods to the port of shipment and the cost of loading. The buyer (consignee) pays the costs of ocean freight, insurance, unloading, and transportation from the arrival port to the final destination. The seller passes the risk to the buyer when the goods are loaded at the originating port.

How is “FOB” used in shipping documents?

The term “FOB” is used in four different ways when it comes to freight shipping. To understand each designation, we must first understand the difference between place of origin and place of destination and freight collect vs. freight prepaid.

The first part of the designation determines where the buyer assumes title of the goods and the risk of damage from the seller (either at the moment the carrier picks the goods up for delivery or at the time of actual delivery). The second part indicates responsibility for freight charges. “Prepaid” means the seller has paid the freight; “collect” indicates the buyer is responsible for payment.

Practical Examples of FOB terms

• FOB Origin Example: Imagine you purchase 1,000 units of a product from a supplier. If the terms are FOB Origin, Freight Collect, you take ownership and liability as soon as the carrier picks up the goods. You are also responsible for the shipping costs.
• FOB Destination Example: If the terms are FOB Destination, Freight Prepaid, the supplier retains ownership and liability until the goods are delivered to you. The supplier also covers the shipping costs.

Key components of FOB

• Ownership Transfer: FOB specifies the point at which the buyer takes ownership of the goods. This can either be at the point of origin (when the goods are picked up by the carrier) or at the destination (when the goods are delivered to the buyer).
• Liability: Along with ownership, liability for the goods also transfers at the specified FOB point. This means that if the goods are damaged or lost, the responsible party is determined by the FOB terms.
• Freight Charges: FOB terms also indicate who is responsible for paying the freight charges. This can either be the seller or the buyer, depending on the agreement.

Why is FOB important for Small Businesses?

Understanding FOB terms can help you manage risks and costs more effectively. Knowing when you take ownership and liability for goods allows you to better plan for insurance and potential claims. Additionally, understanding who pays for shipping can help you negotiate better deals with suppliers and carriers.

In summary, FOB is a critical term in shipping that defines the transfer of ownership, liability, and responsibility for freight charges. By understanding FOB terms, small businesses can make more informed decisions and optimize their shipping processes.

Let our FOB freight experts help

If all of this seems too confusing to follow, see how Freightquote by C.H. Robinson can help handle the placement of your shipment for transport. By utilizing our easy-to-use self-service tools, you can efficiently manage your shipping strategy.

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