FOB, or Freight On Board, is a shipping term that is useful to know when you are learning how to get trucking contracts. It’s used in domestic in the United States as well as international shipping that dictates the terms of sale in regards to the transport costs. The FOB indicates who is responsible for paying transportation charges. Sometimes you may also see FOB meaning Free On Board as well by the shipper. It is the location where ownership of the merchandise transfers from the seller to the buyer. The freight invoice will show the seller pays the freight, and the buyer takes the title once it’s been shipped. The buyer pays the transportation costs such as for supply chains moving freight from the warehouse or vendor to the store.
History of Freight On Board
Historically, the term freight on board was developed in reference to the transfer of title and liability between buyers and sellers of goods. You would typically hear it used solely for goods transported by ship but since then the term has opened up for a broader use.
Who Pays the Freight Cost for FOB?
The FOB terms specify that the buyer must pay for the freight transportation costs. This would also apply for freight collected and allowed, however, in most cases, the buyer deducts the cost from the seller’s invoice. In this scenario, the seller would still be responsible for the goods during the process of shipping because the seller maintains the title of the goods or the ownership of the goods during transit from the shipping dock to the receiving dock until goods transfer to the buyer.
What Do the Add-On Terms Mean?
FOB Destination, freight prepaid
This add-on means the shipper is fully responsible for a shipment until it arrives at the final destination. The shipper pays for the shipment as well, and the receiver is not responsible for the payment of any shipping costs.
FOB Destination, freight collect
Similar to freight prepaid, except the party receiving the shipment is responsible for paying for freight costs upon delivery. The receiver does not take ownership or liability for shipment until delivery.
FOB Destination freight collect and allowed
Here the shipper still owns and shares responsibility for freight until delivery, but the receiver deducts the freight charges from the total cost. The invoice will include the charges that the shipper originally paid.
FOB Origin, Freight prepaid
Like FOB destination, freight prepaid, this term indicates the shipper pays the cost of shipping, however, the receiver owns and assumes liability for products at the point of origin or the FOB shipping point, instead of the destination.
FOB Origin, Freight collect
Freight collect implies that the receiver pays for freight, assumes the cost as well as owns the freight and assumes all necessary liability for the shipment.
FOB Origin, Freight prepaid and charged back
In this add-on, rather than assuming the cost of shipping, the shipper adds freight costs to the original invoice, but the receiver assumes the cost due to it being added directly to the invoice.
FOB Destination, Freight prepaid and charged back.
This add-on involves the addition of the fee being added to the invoice by the shipper. The receiver would assume the cost, in this case, however, the shipper owns the freight and assumes liability until the freight is delivered.
Let TAFS Help
TAFS has trucking in its blood and knows the trucking industry inside and out. FOB is far from the only complicated matter you will encounter in this industry but with a team of some of the most knowledgeable and dedicated trucking experts in the industry today, you are in good hands with TAFS.
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