Freight Claim Filing & FOB Terms

Written by Neal Willis
     

Free on Board terms

Shippers often seek to determine the responsibility of freight claim filing based on either the payment of the freight charges or the FOB (Free on Board) terms of the purchase. FOB terms are too commonly thrown around and don’t mean much when the terms of a purchasing agreement supersede FOB terms.

If there are no specifics mentioned in the purchase agreement, then the FOB terms could be a good indicator as to who should file a claim with the freight carrier. It’s usually left up to the parties involved to decide on who will file the claim with the carrier, but anyone can file a claim.

FOB terms indicate which party bears responsibility of compensating the carrier for the freight charges and at what point ownership of the commodity passes from the seller/shipper to the receiver/buyer. Simply stated, FOB terms indicate the point at which liability and risk of a shipment is passed from the shipper/seller to the receiver/buyer. The four most common FOB terms are: 1) F.O.B. Origin, Freight Collect, 2) F.O.B. Origin, Freight Prepaid, 3) F.O.B. Destination, Freight Collect, and 4) F.O.B. Destination, Freight Prepaid.

F.O.B. Origin, Freight Collect:

“FOB Origin” means that the buyer takes ownership of the item(s) and assumes the risks of transportation the minute that the freight carrier picks up the item(s) and signs the bill of lading at origin. “Freight Collect” means that the buyer accepts responsibility of paying the freight charges. Under this term, the buyer will usually file for a claim in the event of damage or loss, since they are the party paying the freight charges and took ownership of the product at origin the moment the carrier accepted the shipment.

F.O.B. Origin, Freight Prepaid:

“FOB Origin” means that the buyer accepts ownership of the item(s) and all the risks of transportation the minute the freight carrier picks up the goods and signs the bill of lading at origin. “Freight Prepaid” means that the seller consents to the responsibility of paying for the freight charges. Under these terms, the seller pays the carrier for the freight charges while the buyer assumes the risks of transportation. Sellers often file the claims under these terms, even though the buyer is technically responsible for the risks of transportation.

Industry guidelines dictate that freight carriers must reimburse the payor of the freight charges (seller), unless there’s an agreement in writing stating otherwise. Because the seller pays the freight charges directly to the freight carrier, if the buyer were to file the claim and was seeking reimbursement for any portion of the freight charges, then the buyer would have to pursue recovery of the freight charges from the seller and they would have to pursue remedy for the damage(s) from the carrier.

Keep in mind that sellers sometimes markup their cost of freight to buyer on their invoice to the buyer for the product plus the cost of freight. To keep things less complicated and, when applicable to keep the buyer from finding out what the actual freight costs were, the seller will file the claim and handle reimbursement for damage with the buyer.

F.O.B. Destination, Freight Collect: 

“FOB Destination” means that the seller retains title and control of the item(s) until they are delivered. The seller normally chooses the carrier and assumes the responsibility of the risk of transportation. “Freight collect” means that the buyer is responsible for the freight charges. Sometimes the buyer files the claim, since the buyer pays for the freight. Sellers also sometimes file the claims under these terms, especially in cases where there’s loss involved. If the commodity is lost in transit, the seller is in the best position to reasonably prove the value of the commodity at the time of the shipment, and they are uniquely positioned to prove the commodity was shipped.

F.O.B. Destination, Freight Prepaid: 

Free on Board terms

“FOB Destination” means that the seller maintains ownership of the item(s) until a claim-free delivery is made. “Freight prepaid” means that the seller is responsible for all freight charges. Under these terms, the seller normally files the claims with the carrier(s).

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