What Does FOB Stand For & Why is it Important for my Shipment?

When you’re shipping goods either domestically or internationally, you’ve probably noticed that shipping companies and freight forwarders use a lot of freight terms that might seem foreign to you. Regardless of how valuable or large your shipment is, it is important for you to know exactly what these terms mean as they are often integral to the shipping process or liability of your shipment.

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What Does FOB Stand For?

One of the most common freight terms that you will see is FOB, but what does FOB stand for? FOB stands for Free On Board and indicates the physical location at which liability for the shipment has transferred from the shipper to the receiver or the seller to the buyer. This is especially important in international shipping where many more parties are responsible in the transport of a shipment compared to a domestic shipment. 

FOB on Shipping Documentation

FOB can be listed in several different ways on shipping documents and each has a different meaning.

• FOB Origin: 
  • The buyer -- Pays freight charges, bears freight charges, owns goods in transit, is responsible to file claims (if necessary)
• FOB Origin, Freight Collect:
  • The buyer -- Pays freight charges, bears freight charges, owns goods in transit, is responsible to file claims (if necessary)
• FOB Origin, Freight Prepaid:
  • The Seller -- Pays freight charges, bears freight charges
  • The buyer -- Owns goods in transit, is responsible to file claims (if necessary)
• FOB Origin, Freight Prepaid & Add:
  • The seller -- Pays freight charges upfront but adds the charges back to the invoice for the buyer to later pay. 
  • The buyer -- Bears freight charges, owns goods in transit, is responsible to file claims (if necessary)
• FOB Destination:
  • The seller -- Pays freight charges, bears freight charges, owns goods in transit, files claims (if necessary)
• FOB Destination, Freight Collect:
  • The buyer -- Pays freight charges, bears freight charges
  • Seller -- Owns goods in transit, is responsible to file claims (if necessary)
• FOB Destination, Freight Collect & Allow:
  • The buyer -- Pays freight charges
  • The seller -- Bears freight charges, owns goods in transit, files claims (if any)
• FOB Destination, Freight Prepaid:
  • The seller -- Pays freight charges, bears freight charges, owns goods in transit, is responsible to file claims (if necessary)

Why is FOB Important to my Shipment?

FOB is an international freight term that is under the 2010 Incoterms rules published by the International Chamber of Commerce (ICC). Designating an FOB point is an extremely important part of any shipping contract because it can help prevent destination and service errors that can translate into delays and added cost to the shippers.

Incorrect FOB is a common costly mistake made by new or disorganized shippers. If you are unsure of which FOB delineation to use for your shipment, it is best to reach out to your freight forwarder to discuss your options and how much control you would like to have over your shipment from the beginning.

The many different terms, acronyms, and Incoterms that shippers use can be confusing for the average person who does not deal with the intricate shipping process on a daily basis. 

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