What does FOB mean anyway? Abbreviated trade terms can be confusing, but this acronym is an important one to know.
More likely than not, when you’ve shipped something, you’ve come across the FOB acronym. Not many know the true FOB definition, but with FOB terminology being so commonly used in cases of international freight shipping, it’s important to understand the ins and outs.
To better understand all the terminology on your shipping documents, let’s break down the FOB meaning and FOB terms so you can ship with confidence.
FOB Definition
So, what does FOB stand for? FOB is an acronym for “free on board” or “freight on board.” Understanding what FOB is is important as this term acts as a designation to signal that the liability and ownership of goods are being transferred from a seller to a purchaser.
There is a difference between freight on board vs free on board. Here’s how the two terms differ.
Free on Board
To further understand this terminology, free on board indicates who is liable for the goods being shipped, whether it be the buyer or the seller. This is important in the case anything is damaged or destroyed during the process. In this case, FOB will be used in tandem with a physical location which signifies whether the buyer or seller is responsible for the freight charges in the case of an issue and when the responsibility of the shipment transfers from one to the other.
To put this in an example, if a package reads “FOB [name of originating port]”, the seller is responsible up until the package departs the original port, as well as for the initial cost of loading. The responsibility transfers from seller to buyer once the package is loaded at the originating port, and from there on out, responsibility is left up to the buyer.
Freight on Board
To better understand the difference between free on board and freight on board, the freight on board meaning is not an official one and is often used in place of free on board. In its most basic meaning, freight on board is a term that signifies a seller is required to deliver goods to a buyer through a shipping vessel.
How Is “FOB” Used in Shipping Documents?
The term “FOB” is used in a number of ways in the freight shipping process and documentation. Typically, you will see one of the four following uses:
- FOB [place of origin], Freight Collect
- FOB [place of origin] Freight Prepaid
- FOB [place of destination], Freight Collect
- FOB [place of destination], Freight Prepaid
This may not make sense right off the bat, but to understand the FOB designation meaning, let’s start with the difference between FOB origin vs FOB destination.
Shipping Point vs Destination
As touched on before, the main difference between what FOB shipping point means versus destination is in regards to when the seller transfers responsibility and ownership of the shipment to the purchaser. This designation is important in the shipment process to avoid any ambiguity of who is responsible for the package at different points in the process.
When using the term “place of origin” on shipping documents, the seller only maintains ownership of the package until the moment the carrier picks up the package. However, if it reads “place of destination,” the seller takes on responsibility until the shipment is delivered.
Freight Collect vs Freight Prepaid
When thinking about freight collect and freight prepaid, it’s all about who is responsible for the charges. When a document reads “Freight Collect,” this means the person who will receive the shipment will owe all freight charges. On the other hand, if it says “Freight Prepaid,” the shipper will own all charges, and subsequently, the risks associated with shipping.
Example
Let’s put all the shipping terms and abbreviations for FOB into action.
Imagine a boutique in Texas that bought goods from a clothing manufacturer in Japan. If the shipping document has the term “FOB shipping point,” the boutique will take on the responsibility for any damage or issues during transit and will pay any associated costs to insure the shipment.
On the other hand, if the shipment is labeled as “FOB destination,” the clothing manufacturer in Japan will be responsible for the risk of damage or loss throughout the process of the shipment, and will need to pay for an insurance policy to maintain their responsibility.
At the end of the day, the logistics terms for FOB help signal who is responsible for the shipment and any damage or loss for a clear shipping process.
The Importance of FOB
There are many reasons FOB is important to the shipping process, but it becomes most essential in situations where damages occur in the shipping process. In fact, some receiving ports will refuse the delivery of damaged goods in many cases where the FOB does not clearly state where responsibility lies. Additionally, in the case where damage occurs, it’s important to know who “owns” the package to determine who pays the cost.
Ultimately, FOB helps prevent any argument or issues in the shipping process, pre-determining where responsibility lies to avoid any confusion.
Conclusion
While you may not need to know the full meaning of FOB in your everyday interactions, it is important to understand when handling shipments. This terminology helps determine who is responsible for a shipment, creating a more seamless process - something we want with each and every large purchase.
For a partner in the process, freight shipping company has extensive experience in legal matters arising from FOB designation. For help with your next shipment, get freight transportation quote to arrange the transportation for a better shipping experience.
