There are many confusing terms in freight shipping, regardless if you are an experienced shipper or new to the business. It is important to be aware of the true meaning of freight terms to properly use them when trouble comes up. Not knowing the meaning of certain abbreviations or words can cost you time and money. FOB is one of the unusual terms in freight shipping, yet it is very important.
What does FOB stand for in freight shipping?
There are two options for the meaning of FOB: free on board and freight on board. Both have the same meaning, though it is recommended to use free onboard since freight on board is not an official term.
Why does FOB matter?
FOB is an important note that designates who is liable for the shipments, and who pays all the remaining expenses upon arrival. Basically, it states which party is responsible for the shipment, bills, payments, and documentation. You will need a FOB note when the shipment is damaged or lost. Depending on who is held liable for the goods, it further defines the returns, claims, or delivery refusal process of the damaged freight shipment.
How is FOB used in freight shipping?
The term FOB is not used alone, it always has a note. For example, if there is a FOB with origin point, this means that the shipper (seller) is liable for the transportation and loading of the shipment. But once it arrives at the 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 (Freight Collect)
- FOB Origin (Freight Prepaid)
- FOB Destination (Freight Collect)
- FOB Destination (Freight Prepaid)
Origin & Destination
Both of these marks states who owns the shipments and holds responsibility for it. If the place of origin is stated, it means the receiver owns the shipment after the BOL is signed. In case there is a place of destination, the shipper is being liable for the shipment.
Freight Collect & Freight Prepaid
Whenever you see freight collect, it means the receiver is accountable for all freight charges and payments, and vice versa, if it’s freight prepaid the liable party is the shipper (seller).