How to Solve The Biggest Problem with FOB Terms

Written by Neal Willis
     

shipping-warehouse.jpgF.O.B. (Free on Board) terms indicate at which point title of the goods passes from the seller to the buyer. They also indicate who bears the risks associated with transportation and who is responsible for the payment of the freight charges to the carrier. Common FOB Terms include: 1) F.O.B. Origin, Freight Collect, 2) F.O.B. Origin, Freight Prepaid, 3) F.O.B. Destination, Freight Collect & 4) F.O.B. Destination, Freight Prepaid.

F.O.B. Origin, Freight Collect

Buyer assumes the risks of transportation upon signed receipt of the goods by the carrier at origin. The buyer also bears the responsibility of payment for the freight charges to the carrier.

F.O.B. Origin, Freight Prepaid

Buyer assumes the risks of transportation upon signed receipt of the goods by the carrier at origin. The seller bears the responsibility of payment for the freight charges to the carrier.

F.O.B. Destination, Freight Collect

The seller assumes the risks of transportation until signed receipt of the goods by the consignee at destination. The buyer assumes responsibility of payment of freight charges to the carrier.

F.O.B. Destination, Freight Prepaid

The seller assumes the risks of transportation until signed receipt of the goods by the consignee at destination. The seller also bears the responsibility of payment of the freight charges to the carrier.

In the event of damage and/or loss, it’s commonly decided amongst the involved parties as to who files a freight claim, however, anyone can file one. The payer of the freight bill is generally the only party eligible to receive reimbursement of the freight charges portion of a claim and, for that simple reason, the party responsible for paying the freight charges will oftentimes also file the freight claim.

shipping-boxes-1.jpgF.O.B. terms can be confusing and are all too often misinterpreted and misused by shippers when determining who should file a freight claim. Quite possibly the biggest problem with relying on F.O.B. terms to indicate the responsibility of freight claim filing is the fact that F.O.B. terms are customarily superseded by the terms of sale. Therefore, when seeking to determine who should be responsible for filing a freight claim, the first step should be to look at the terms of sale (purchasing agreement) to see if it contains applicable policies for handling freight damage. 

Sometimes titled a purchasing agreement and referenced in a purchase order, the terms of sale outline explicit obligations of each party involved with a particular transaction and are ordinarily agreed upon before any order is officially processed, much less shipped. If there are no guidelines implied within the purchasing agreement, then F.O.B. terms could be used to determine who should file a freight claim and who should bear the responsibility of damage and/or loss.

Specific policies on the subject of damaged freight may need to be incorporated into your terms of sale, if they aren’t already built-in. With guidelines for dealing with damaged freight included in the written terms of the sale, shippers can eliminate any confusion around who is responsible for filing a freight claim and avoid misunderstandings with the interpretation of F.O.B. terms.

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