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Free On Board: What Does FOB Mean in Supply Chain and Logistics?
free on board

The freight shipping industry is saturated with many shipping terms that sometimes seem confusing even to experienced shippers. Besides, a lack of understanding of certain industry abbreviations can cost you time and money. FOB is a widely used industry term. However, not everyone knows the accurate meaning and definition.

What is FOB in freight shipping?

FOB is one of the rarely recognized words in freight shipping vocabulary, yet it is still vital. FOB is an international term that stands for free (freight) on board and designates the liability for the transported goods. Generally, FOB marks who handles the payments and responsibility for cargo and when the responsibility should transfer from the seller to the buyer.

What does FOB mean in logistics?

There are a few key papers when it comes to freight shipping, and apart from the bill of lading, FOB is an essential mark that indicates who is liable for the freight and who pays all the remaining freight charges upon shipment arrival. Essentially, the FOB note designates which party is responsible for the cargo, payments, and paperwork.

Another key FOB role in logistics is when the load gets lost or damaged. Since FOB contains information about who is responsible for the shipment, it further specifies the process of returns, claims, or a delivery refusal. If the cargo gets damaged during transportation, it is necessary to possess a document showing what side will cover the financial losses without further complaints.

How is FOB used in freight shipping?

Another thing to know about FOBs is that it always contains additional information about the party liable for the shipment. For example, if there is a FOB with an origin point, the shipper or seller is responsible for transporting and loading the goods. But once it arrives at the final destination, the shipper passes the responsibility to the receiver or consignee.

This way, there are four ways to use FOB for freight shipping:

  • FOB origin: if the origin point is declared, the receiver owns the shipment after signing the BOL. When the carrier company picks up and signs the BOL, the buyer claims their ownership of the items.
  • FOB destination: if there is a destination point, the shipper is liable for the items. In this case, the seller is responsible for the goods until their very arrival.
  • Freight (Collect): if the place of origin is declared, the receiver owns the shipment after the BOL is signed. Here, the receiver is well-aware of all the transport costs and assumes risks of freight damage.
  • Freight (Prepaid): if there is a place of destination, the shipper is held liable for the shipment. Carrier companies accept responsibility for the shipped items and possible transportation risks.