What Does Freight On Board Mean?

FOB, or Freight On Board, is a vital shipping term in both domestic and international shipping. It indicates the point at which ownership of the goods and responsibility for transportation costs transfer from the seller to the buyer. Understanding FOB is essential for those navigating freight shipping, as it clarifies who covers freight charges and who bears the risk of loss. The FOB agreements also detail the shipping process, specifying who pays shipping costs and when the title of the goods officially transfers.

 

History of Freight On Board 

 

Originally, Freight On Board applied strictly to goods shipped by sea, but its usage has expanded to other forms of international trade and freight shipping. Today, FOB terms are widely recognized as part of Incoterms or International Commercial Terms—standardized by the International Chamber of Commerce (ICC) to facilitate trade. The bill of lading and other shipping documents specify FOB terms to establish clarity for both parties in international trade.

 

Who Pays the Freight Cost for FOB? 

The FOB shipping agreement determines whether the shipper or the consignee (buyer) covers freight costs. Generally:

• Under FOB origin (or FOB shipping point), the buyer pays for transportation costs from the point of origin, assuming ownership of the goods and related risks once the goods leave the seller’s location.
• Under FOB destination, the shipper (or seller) retains ownership of the goods and pays shipping costs until the items reach the final destination.

The bill of lading often details these FOB terms, helping to define roles in risk management and cost of shipping.

 

What Do the Add-On Terms Mean? 

FOB terms often include additional conditions that specify how costs and responsibilities are shared between buyer and seller. Here’s a breakdown:

 

FOB Destination, freight prepaid 

 

• The shipper is responsible for shipping costs and assumes risk until the shipment reaches the final destination.

 

FOB Destination, freight collect

 

• The buyer pays for freight charges upon delivery, with ownership transferring only once the goods are delivered.

 

FOB Destination freight collect and allowed 

 

• The seller pays upfront for shipping but adds the freight charge to the invoice. The buyer deducts the freight costs from the seller pays total.

 

FOB Origin, Freight prepaid 

 

• The cost of shipping is covered by the seller, but ownership and liability transfer to the buyer at the port of shipment.

 

FOB Origin, Freight collect 

 

• The buyer pays freight costs and assumes all risks at the port of shipment.

 

FOB Origin, Freight prepaid and charged back 

 

• The seller pays shipping costs upfront and charges the buyer via the invoice. Ownership transfers to the buyer at the shipping port.

 

These terms, including FOB destination, freight collect, help establish FOB agreements between the provider and buyer.

 

Why is Understanding FOB Important? 

Understanding FOB is crucial for managing shipping goods and mitigating risk of loss. In an FOB shipping agreement, responsibility and risk transfer vary depending on terms like FOB origin or FOB destination. For instance, with FOB destination, freight prepaid, the seller assumes risk during transit, while FOB origin terms transfer risk to the buyer at the seller’s location.

For supply chains, knowing these distinctions enables better risk management and budget forecasting. The FOB terms and Incoterms guide logistics decisions, making it easier for providers to plan the shipping process efficiently.

 

Additional Considerations for FOB Agreements 

When navigating FOB terms, understanding additional factors like freight forwarders and shipping costs is important:

• Risk of Loss: An FOB shipping agreement specifies when risk transfers, helping each party manage risk more effectively.
• Bill of Lading: The bill of lading accompanies the shipment and outlines the FOB terms, making it an essential shipping document.
• Incoterms: FOB terms are part of Incoterms established by the International Chamber of Commerce, widely used for international trade.

 

Let TAFS Help 

 

TAFS has trucking in its blood and knows the trucking industry inside and out. FOB is far from the only complicated matter you will encounter in this industry but with a team of some of the most knowledgeable and dedicated trucking experts in the industry today, you are in good hands with TAFS.

 

Want to know more about the acronym FOB or other commercial terms of logistics providers? Talk to one of our trucking experts today! 913-393-6110