What Does Free or Freight On Board (FOB) Mean?

Example-of-Freight-On-Board

The delivery of items must be accompanied by the appropriate documentation, whether they are being shipped domestically or internationally. Depending on whether the shipment is to the United States or another country, the amount and type of required documentation will vary.

Three key documents are required for domestic shipment: the bill of lading and freight bills. Most retailers will reference the FOB type on all documents, even the invoice.

What is FOB?

FOB stands for Free On Board or Freight On Board. This shipping term is used in retail to identify who is responsible for paying transport charges. It’s the place where the ownership of the merchandise passes from the seller to the buyer. Once the merchandise has been shipped, the seller pays for the freight. The buyer then takes over the title. Transport costs between the vendor or warehouse and the store are paid by the buyer.

FOB terms of sale determine which party (vendor, retailer, etc.) is responsible for transportation costs and who controls the movement of goods. They also specify when title passes to the buyer (date/time). The freight hauler (or delivery company, such as FedEx, UPS or Conway) is usually not involved in most cases. However, in certain instances, the freight trucker may be liable. However, a freight hauler is always responsible for any damage that it causes in transit.

FOB terms of sale that state it is “FOB delivery” will mean that the shipper will bear all costs associated with the transportation. If “FOB Origin” is indicated on the terms of sale, this means that the buyer will assume title to the goods once they are shipped. They will also be responsible for all transportation costs from the shipping point to the final destination.

The History of the Term

FOB was historically used to refer to the transfer of title and liability between buyers or sellers of goods. It was only used for goods that were transported by ship. Since sea commerce was still the main means of transporting goods, the term FOB has expanded to include all transportation modes. The definition can differ by country or legal jurisdiction.

FOB terms are important because they help determine who owns freight while it’s in transit. The owner’s insurance policy will apply if the freight is damaged, lost, or stolen. It is important to understand the terms of the contract and who is responsible at each stage of the freight’s journey.

The FOB terms of any vendor-client transaction must be clearly stated in purchase orders. A retailer should have a set of terms that can easily be negotiated per vendor. This will help you save time and money.

Terms and Conditions

You should be aware that there are many variations in FOB terms.

  • FOB origin means that the buyer will take title to the goods once the carrier/hauler has picked up the shipment and signed for it.
  • Freight collection means that the buyer pays all freight costs and files any insurance claims.
  • If the terms contain the phrase “FOB Destination, Freight Collect”, the seller retains title to the shipment until delivery. The buyer is responsible for all freight charges.
  • If the terms contain “FOB destination, freight paid,” the seller will retain ownership of the goods until delivery provided that there are no insurance claims. The seller is responsible to pay freight costs in this case.

It is important to fully understand the FOB terms in order for all parties to know what is expected. Also, who will be responsible if there are any unexpected charges or fees? Your dating is also important. While vendors may offer payment terms that are longer, the start date for payments is determined by the FOB date. This has a direct impact on the price of goods.

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