FOB Definition – Shipping Terms of Sale

FOB, Free On Board, is a transportation term that indicates that the price for goods includes delivery at the seller’s expense to a specified point and no further. The FOB term is used with an identified physical location to determine 1) the responsibility and basis for payment of freight charges, and 2) the point at which title for the shipment passes from seller to buyer.

The FOB location terms, Origin and Destination, may be qualified by modifiers. The modifier determines the payment of the transportation charges. Modifiers denote nothing about the title of the goods or filing of claims. The most three common modifiers are: Collect, Prepaid & Add, and Prepaid & Allow.

Collect Prepaid & Add: The carrier collects the transportation charges from the buyer. The seller prepays the transportation charges, but adds the charges to the invoice for reimbursement from the buyer.

Prepaid & Allow: The seller prepays the transportation charges and they are already included in the contract price.

TITLE & CONTROL OF GOODS FOB ORIGIN

The buyer assumes title and control of the goods the moment the carrier signs the bill of lading.
The buyer assumes risk of transportation and is entitled to route the shipment.
The buyer is responsible for filing claims for loss or damage.

FOB DESTINATION

The seller retains title and control of goods until they are delivered and the contract of carriage has been completed.
The seller selects the carrier and is responsible for the risk of transportation.
The seller is responsible for filing claims for loss or damage.

PAYMENT TERM VARIATIONS

POINT OF ORIGIN

FOB Origin: Unless qualified in the FOB clause, the buyer is responsible for freight charges.
FOB Origin Freight Collect: Buyer pays and bears freight charges.
FOB Origin, Freight Prepaid: Seller pays and bears freight charges.
FOB Origin, Freight Prepaid & Add: Seller pays and invoices buyer for freight charges.

DESTINATION

FOB Destination: Unless qualified in the FOB clause, the seller is responsible for freight charges.
FOB Destination, Freight Collect: Buyer pays and bears the freight charges.
FOB Destination, Freight Prepaid: Seller pays and bears the freight charges.
FOB Destination, Freight Collect & Allowed: Buyer pays freight charges and deducts the amount from seller’s invoice.
FOB Destination, Freight Prepaid & Add: Seller pays the freight and adds the freight charges to itsinvoice to the buyer.

ANOTHER ILLUSTRATION OF THE MEANING OF THE TERMS OF SALE

FOB Origin

Buyer — Pays freight charges
Buyer — Bears freight charges
Buyer — Owns goods in transit
Buyer — Files claims (if any)

FOB Origin, Freight Collect
Buyer — Pays freight charges
Buyer — Bears freight charges
Buyer — Owns goods in transit
Buyer — Files claims (if any)

FOB Origin, Freight Prepaid 

Seller — Pays freight charges
Seller — Bears freight charges
Buyer — Owns goods in transit
Buyer — Files claims (if any)

FOB Origin, Freight Prepaid & Add 

Seller — Pays freight charges
Buyer — Bears freight charges
Buyer — Owns goods in transit
Buyer — Files claims (if any)

FOB Destination
Seller — Pays freight charges
Seller — Bears freight charges
Seller — Owns goods in transit
Seller — Files claims (if any)

FOB Destination, Freight Collect

Buyer — Pays freight charges
Buyer — Bears freight charges
Seller — Owns goods in transit
Seller — Files claims (if any)

FOB Destination, Freight Collect & Allow 

Buyer — Pays freight charges
Seller — Bears freight charges
Seller — Owns goods in transit
Seller — Files claims (if any)

FOB Destination, Freight Prepaid
Seller — Pays freight charges
Seller — Bears freight charges
Seller — Owns goods in transit

Seller — Files claims (if any)