What is the meaning of FOB?

Nov 28, 2023 6:34:25 AM | containertracking What is the meaning of FOB?

Unlock the meaning behind FOB in global trade with this in-depth exploration. Originating from free on board, FOB plays a pivotal role in international transactions, delineating responsibility shifts, ownership transfers, and shipping cost dynamics.

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How is “FOB” used in shipping documents?

The term “FOB” is used in four different ways when it comes to freight shipping. These include:

  1. FOB [place of origin], Freight Collect
  2. FOB [place of origin], Freight Prepaid
  3. FOB [place of destination], Freight Collect
  4. FOB [place of destination], Freight Prepaid

To understand each designation, we must first understand the difference between place of origin and place of destination and freight collect vs. 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.

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. By denoting who “owns” the shipment, there is no ambiguity in responsibility of shipment. 

Freight Collect vs. Freight Prepaid:

Freight collect means the person receiving the shipment is responsible for all freight charges. They also assume all risks and are responsible for filing claims in the case of loss or damage.

Freight prepaid is the opposite. The shipper accepts responsibility for all freight charges and risks.

FOB, or freeboard, is a term used in international trade to indicate the responsibility and ownership of goods during transportation. It is mainly used for goods transported by water, as it is cost-effective and has greater capacity. FOB deliveries are often mistaken for free, but they are not free and are based on factors such as weight, cubic feet (CBM), volume, and fuel distance.

Another concept around FOB and FOB delivery is the FOB delivery point, which signifies that ownership and responsibility are transferred from seller to buyer. This point is also considered the load on the vehicle used for transport. The seller has no commitment to the goods once they are transferred to the carrier or forwarding company. The new owner of the goods is responsible for the actions along the supply chain until they reach the endpoint.

The FOB delivery point is widely used in international trade, and it is accepted that the seller has fulfilled their duty by handing over the goods to the buyer. They are responsible for their preservation and shipping costs. The legal title of the goods is also on the FOB delivery point, and the seller has no obligation to complete their task once the goods are transferred to the carrier or forwarding company.

In conclusion, FOB is a crucial term in international trade, indicating the responsibility and ownership of goods during transportation. It is important to note that FOB delivery points are not always located in the opposite shore country, and the new owner's responsibility extends throughout the supply chain.

FOB Origin and FOB Destination are two terms often misunderstood in the logistics industry. FOB Origin indicates that the seller transfers ownership and responsibility to the buyer as soon as the goods are loaded onto the transport vehicle, with shipping fees to be paid to freight forwarders or carrier companies. This relief for the seller is not provided for the buyer.

FOB Destination has a slightly different policy regarding the transfer of responsibility and ownership of goods from one person to another. The buyer has greater guarantee and peace of mind as they only have to take care of the shipment when they are already with them. Shipping costs and any damages incurred are at the seller's expense. FOB Destination poses a greater risk to the seller because it may suffer greater losses if something happens along the way with the goods.

When FOB (Free on Board) is indicated, there are many other names that need to be checked to make sure they are listed. The documentation should be reviewed by a specialist because the ordinary buyer can be misled. Some basic terms that any international trade participant would be familiar with include FOB Origin, prepaid goods, freight collection, prepaid, and refund shipping, FOB Destination, collecting goods, prepaid, and refund fees, and FOB Destination, pickup, and clearance.

Transport documentation is important when moving consignments from one side to another. It is good to have familiar persons with the term FOB in all its forms, especially buyers in the event of damage to transport. To avoid problems, it would be beneficial for buyers to be more trained with the markings on the cargo board, which will be of great help in the case of delivery of damaged goods that can be refused acceptance by the docks.

Why does FOB matter?

FOB is important for a number of reasons, but most importantly, shippers and carriers need 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.