Understanding Freight On Board (FOB) in Freight Shipping
When you are involved in shipping and logistics, there are several terms that you come across daily. They are essential for conducting operations, sometimes confusing. Keeping a tab of them at all times can be difficult. For example, you must have come across freight on board (FOB).
Even though it is a common term, sellers and shippers are usually confused about the true meaning. With this article, let’s look at what freight on board (FOB) is, the cost involved in calculating FOB, its use in shipping documentation, significance, and other relevant terms that you must know.
What is Freight On Board (FOB)?
Freight on board (FOB) is a term used to tell when the liability or ownership of the goods shifts from the seller to the buyer. It is an international legal term that means if a seller is required to deliver goods on both the shipping vessels to the buyer.
Another rendition is free on board (FOB) which tells if the seller or buyer is liable for the damaged goods during shipping.
When the term freight on board is used with the destination, it determines which party is responsible for paying the freight charges.
Costs Involved in FOB
The cost involved in freight on board (FOB) from the seller’s point of view includes the transport costs to the Port of shipment, loading costs for loading goods into a shipping vessel, the marine freight transport, unloading costs, and transportation costs till the final destination.
When we talk about F.O.B. origin, the buyer will be responsible for all the overhead costs.
For example, suppose a buyer from America buys a wooden centerpiece from India. They must pay for all the transportation costs from the seller’s warehouse to the port, loading and unloading cost, and shipping to the final destination.
Use of FOB in Shipping Documentation
Freight on board is used in four different ways in freight shipping. It includes –
- FOB [place of origin], Freight Collect
- FOB [place of origin], Freight Prepaid
- FOB [place of destination], Freight Collect
- FOB [place of destination], Freight Prepaid
In the above, the first part of the designation tells who assumes the risk of damage and the title of the goods, the buyer or the seller.
The second part of the designation talks about the responsibility for the freight charges. Prepaid means the seller already pays the costs, and collect means the need to be collected from the buyer.
Significance of Freight On Board Shipping
Freight on board shipping is critical because it clarifies who is responsible for the shipment in damage situations, payment, etc. It throws light on the titles and makes the process transparent for the shipping company.
When the buyer refuses to collect the delivery, a clear freight on board document will help the seller contest this and collect payment.
Other Important Terms
Other related terms with freight on board include –
- FOB Origin, Freight Prepaid, & Charged Back
This indicates that the seller does not pay the shipping cost but has added the cost of shipping to the invoice. The buyer takes ownership of the shipment and pays the bill on a more expensive invoice.
- FOB Destination, Freight Prepaid, & Charged Back
This indicates that the seller is taking responsibility for the state until the goods are delivered. The buyer deducts the charges from the invoice.
- FOB Destination, Freight Collect, and Allowed
In this scenario, the shipper adds the freight cost to the invoice, and the buyer pays the charges.
Freight on board is an important shipping town for international deliveries. You must be aware of it to conduct your shipments seamlessly and deliver to customers without any hiccups.