What does FOB mean in the freight industry?
November 2, 2009
Many people have seen the acronym F.O.B. in shipping documents and never known what it meant. Even those in the shipping industry often are confused as to its true meaning.
F.O.B. stands for “free on board.” There, now you know.
But what the heck does that mean? The FOB designation is used to indicate when liability and ownership of goods is transferred from a seller to a buyer. 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.
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.
“FOB” can be used in four different ways in shipping documents:
- FOB [place of origin], Freight Collect
- FOB [place of origin], Freight Prepaid
- FOB [place of destination], Freight Collect
- FOB [place of destination], 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.
It is important for shippers to understand FOB designations in damage situations. Some receiving docks will refuse delivery of obviously damaged goods, rather than accept with a damage notation for future claim against the carrier. However, a shipment designated FOB Origin technically belongs to the buyer/consignee at the time that it is shipped. So, the consignee would be refusing delivery of goods it legally owns and bears the risk for. The seller has no legal reason to accept those goods back and the return shipment could possibly result in additional damages.
If all of this seems too confusing to follow, consider allowing Freightquote to handle the placement of your shipment for transport. The legal issues raised in FOB designations are old hat to Freightquote’s experienced customer service agents – the right designations (and, on rare occasions, any damage claims) can be managed quickly and efficiently by the Freightquote team.
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