Freight Free on Board (FOB) Shipping Terms

Written by Neal Willis
    


Toy Forklift Holding Letter Block B in word FOBFreight FOB terms are commonly misunderstood, and determining the responsibility of freight claim filing based on the FOB shipping terms can be somewhat confusing. Freight FOB terms are intended to signal the point where liability and risk associated with ownership of the freight is shifted from the seller (shipper) to the buyer (receiver/consignee). 

Freight FOB terms can sometimes be an indicator as to who should file a freight claim, and they can also spell out the responsibility of payment for the freight charges to the freight carrier. Although freight FOB terms are frequently written on bills of lading and other shipping documents, they’re likely to be administered first through a purchasing agreement that’s been acknowledged and agreed upon by the relevant parties involved with the transaction prior to any movement of freight.

A few of the most common freight FOB shipping terms include 

  • FOB origin, freight collect
  • FOB origin, freight prepaid
  • FOB destination, freight collect
  • FOB destination freight prepaid

F.O.B. Origin, Freight Collect

With FOB origin, the ownership of the freight is passed to the buyer who also assumes the risks of transportation whenever the freight carrier signs the bills of lading at origin. Freight collect signals the buyer also accepts responsibility for the freight charges at that same time and will remit payment to the freight carrier. 

F.O.B. Origin, Freight Prepaid

Under FOB origin, freight prepaid terms, the buyer assumes the risks of transportation and takes ownership of the freight at origin, while the seller bears the responsibility for paying the freight charges. 

F.O.B. Destination, Freight Collect

Under FOB destination, freight collect terms, the buyer accepts responsibility for payment of the freight charges, and ownership of the freight passes to the buyer upon delivery at destination. The seller bears the risk of transportation until a clean delivery is made.  

F.O.B. Destination, Freight Prepaid: 

Under FOB destination, freight prepaid terms, the seller maintains ownership until the freight is delivered at destination and the seller accepts responsibility of payment for the freight charges. Until a clean/clear delivery is made, the seller bears the risk of transportation.

In most cases when damage or some other cause yields a reason to file a claim with a freight carrier, the parties involved with the shipment come to an agreement as to who will file the freight claim. 

Should there be a dispute as to who should file the claim and the parties involved with the shipment can’t agree on who should handle the claim filing, they should first turn to the purchase agreement to help with deciding on whose responsibility it is to file. 

When a purchase agreement doesn’t address the specific freight FOB terms between the respective parties involved with the transaction (shipment), the FOB shipping terms written on bills of lading or other official shipping document may then be a potential determinant as to who should bear the responsibility of filing a freight claim. 

In any instance where the purchase agreement clearly spells out the FOB shipping terms and who bears responsibility for damages and filing a freight claim, the freight FOB terms written on a bill of lading are somewhat insignificant. Terms of the purchase agreement supersede FOB shipping terms. 

Any party involved with a shipment can file a freight claim. It’s left up to the parties involved to decide who will file the claim, and it’s common practice that the freight charge portion of the claim will only be reimbursed to the party that paid the freight charges.  

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