Free on board (FOB)
Reviewed by Dasha ShakovVP Marketing, Proton
Updated
What is free on board (FOB)?
Free on board (FOB) is a shipping term that names the point where responsibility for the goods passes from seller to buyer. Under FOB origin (or FOB shipping point) the buyer takes on the goods once they are handed to the carrier; under FOB destination the seller remains responsible until they arrive.
How it works
Under the US Uniform Commercial Code (UCC 2-319), the FOB point sets a default for both risk of loss and freight expense: under FOB shipping point the seller pays to get the goods to the carrier, and under FOB destination the seller pays to transport them. In practice, distributors read FOB mainly as the point where title and risk pass and state freight terms separately, as in “FOB origin, freight prepaid and add,” which overrides the default. “Freight on board” is a common misreading of the abbreviation.
International trade uses the Incoterms rules instead, under which FOB applies only to goods shipped by sea or inland waterway.
Free on board (FOB) example
Fixtures bought FOB origin arrive with two crushed cartons. Since the risk passed at the manufacturer’s dock, the distributor files the damage claim with the carrier itself.
Further reading
Related terms
- Freight termsFreight terms are the part of a sale that says who pays for shipping and how the cost is billed.
- Bill of lading (BOL)A bill of lading (BOL) is the document a carrier issues at pickup that serves as the receipt for the goods and the contract for carrying them.
- Less-than-truckload (LTL)Less-than-truckload (LTL) is a freight service for shipments too large for parcel carriers but too small to fill a truck, typically one to several pallets.
- Landed costLanded cost is the total cost of getting a product onto the shelf: its purchase price plus inbound freight, duties and tariffs, insurance and handling.
