It's best for a retailer to have a standard set of terms that can be negotiated on a per-vendor basis. "FOB origin" means the transfer occurs as soon as the goods are safely on board the transport. There are two possibilities: "FOB origin", or "FOB destination". One of the most important aspects of FOB terms is that it helps determine which party owns the freight while it is in transit. Freight on board is another term that is often used in place of free on board. A freight hauler is always liable for the damage it may cause in transit, though. There is no line item payment by the buyer for the cost of getting the goods onto the transport. Some vendors will offer longer terms for payment, but the start date is based on FOB date. What is the Difference Between LTL & FTL? This ultimately impacts the cost of goods. For most retailers, the FOB type is referenced on all documents, including the invoice for payment. What Are Transportation Accessorial Fees? Matthew Hudson wrote about retail for The Balance Small Business, and has almost three decades of experience in the retail industry. Get cost savings tips, instant quotes, and new ideas to help streamline shipping for your small business.privacy notice, Enterprise Transportation Management System (eTMS). In this scenario, the seller is responsible for the freight charges. The seller passes the risk to the buyer when the goods are loaded at the originating port. If the terms include "FOB destination, freight prepaid," the seller retains ownership until delivery, provided there are no insurance claims. Freight prepaid is the opposite. The amount and type of documentation vary depending on whether the shipment is within the United States or to another country. The term “FOB” is used in four different ways when it comes to freight shipping. It is the location where ownership of the merchandise transfers from seller to buyer. • Transportation Terminology Can Be Tricky Robinson can help handle the placement of your shipment for transport. The seller pays the freight, and the buyer takes the title once it's been shipped. If the FOB terms of sale indicate that it is "FOB delivered," then this implies that the shipper will be responsible for all of the carrier’s costs. https://www.istockphoto.com/portfolio/DragonImages, How a Freight Service Provider Can Add Expertise to Your SMB. If you’ve ever shipped anything, you’ve likely seen the acronym FOB in your shipping documents. • What States Have the Most Outbound Freight? Any vendor-client transaction should have the FOB terms spelled out very clearly in purchase orders. In most cases, the freight hauler or delivery company (such as FedEx, UPS, Conway) is not involved, but in some instances, the freight hauler is liable as well. The acronym FOB, which stands for "Free On Board" or "Freight On Board," is a shipping term used in retail to indicate who is responsible for paying transportation charges. However, a shipment designated FOB Origin technically belongs to the buyer/consignee at the time that it is shipped. What FOB Stands For . In North America, FOB is written into a sales agreement to determine where the liability responsibility for the goods transfers from the seller to the buyer. The term has been expanded since the days when sea commerce was the primary means of transporting goods, and the definition includes all types of transportation and can vary by country or legal jurisdiction. © 2020 C.H. They also assume all risks and are responsible for filing claims in the case of loss or damage. The second part indicates responsibility for freight charges. What Is a Purchase Order and How Can It Benefit Your Business? The shipper accepts responsibility for all freight charges and risks. FOB is important for a number of reasons, but most importantly, shippers and carriers need to understand FOB designations in damage situations. It turns out, not a lot. What You Need to Ship Cargo by Ocean or Air, Here Is a Sample of a Third-Party Logistics Provider Contract, A Handy Retailer's Guide to Processing Incoming Freight, The Balance Small Business is part of the. Expert freight shipping tips and fast, easy tools to help you ship freight. If all of this seems too confusing to follow, see how Freightquote by C.H. Though, how many people know what it means? 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. Thus, it's important to be clear about the terms and know who is responsible for the shipment at every stage of its journey. Place of Origin vs. Place of Destination: Place of origin means the buyer assumes ownership of the shipment the moment the carrier picks up and signs the bill of lading while place of destination means the seller retains ownership and control of the goods until they are delivered. Free on board indicates whether the seller or the buyer is liable for goods that are damaged or destroyed during shipping. By utilizing our easy-to-use self-service tools, you can efficiently manage your shipping strategy, should any issues arise. • What is the Difference Between LTL & FTL? Seven steps you can use to improve the shipper-carrier relationship and ultimately benefit your business. “Prepaid” means the seller has paid the freight; “collect” indicates the buyer is responsible for payment. Three ways to reduce shipping costs and better manage your business. "FOB destination" means the transfer occurs the moment the goods are remove… The buyer (consignee) pays the costs of ocean freight, insurance, unloading, and transportation from the arrival port to the final destination. What Does Free or Freight On Board (FOB) Mean? The legal issues raised in FOB designations are nothing new to us here at Freightquote. Related Posts: It is the location where ownership of the merchandise transfers from seller to 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. This will save headaches and cost down the road. Even those in the shipping industry with knowledge of freight shipping terminology often are confused as to the true meaning. How to Manage Transport Documentation: Logistics and Supply Chain, What You Need to Know About International Shipping Terms, Protect Your Business by Understanding Different Freight Charges. FOB historically had referred to the transfer of title and liability between buyers and sellers of goods, and it was used solely for goods transported by ship. These include: To understand each designation, we must first understand the difference between place of origin and place of destination and freight collect vs. freight prepaid. If the terms of sale show "FOB origin," then this means that the buyer will take the title of the goods when they are shipped, and they will incur all the transportation costs from the shipping location to the final destination. Robinson Worldwide, Inc. All Rights Reserved. What States Have the Most Outbound Freight? Free on Board: Free on board indicates whether the seller or the buyer is liable for goods that are damaged or destroyed during shipping. The buyer pays the transportation costs from the warehouse or vendor to the store. FOB stands for "Free On Board". By denoting who “owns” the shipment, there is no ambiguity in responsibility of shipment. The acronym FOB, which stands for "Free On Board" or "Freight On Board," is a shipping term used in retail to indicate who is responsible for paying transportation charges. Freight collect means the buyer is then responsible for all freight charges and is responsible for filing any necessary insurance claims. Image Credit: https://www.istockphoto.com/portfolio/DragonImages. So, the consignee would be refusing delivery of goods it legally owns and bears the risk for. Preparing to Reopen Your Small Business? The seller has no legal reason to accept those goods back and the return shipment could possibly result in additional damages. Small Business Guide to Decoding Incoterms. You win with leading technology and helpful industry experts. 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. Some receiving docks will refuse delivery of obviously damaged goods, rather than accept with a damage notation for future claim against the carrier. There are a few variations of FOB terms to be aware of: It's important to understand the specifics of the FOB terms so all parties know what is expected and who will be responsible for unforeseen charges and fees. If the freight is damaged or lost, the insurance policy of the owner is in effect. To help shippers better understand FOB, we've broken it down below: 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. Here’s How to Start Shipping Again, How to Use a Freight Terminal Safely During Covid-19, 4 Tips on Shipping Food During Produce Season, Freight Capacity Trends During the Coronavirus Pandemic, FOB [place of destination], Freight Collect, FOB [place of destination], Freight Prepaid. For domestic shipments, there are three key documents to be aware of: the bill of lading, the freight bill, and the Free On Board (FOB) terms of sale. If the terms include the phrase "FOB destination, freight collect," the seller has title and control over the shipment until it's been delivered, and the buyer is responsible for freight charges. FOB terms of sale establish which party (vendor or retailer) will be liable for the transportation costs, which party is in control of the movement of the goods, and when (date/time) the title passes to the buyer. It's also important to consider your dating as well. 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). When items are transported either domestically or internationally, the delivery must be accompanied by relevant documentation. "FOB origin" means the buyer will assume the title of the goods as soon as the carrier/hauler picks up and signs for the shipment. However, it’s worth noting, this is not an official term.