The freight shipping industry is saturated with many shipping terms that are sometimes confusing even to experienced shippers. One such term is the FOB acronym, which stands for free (or freight) on board. It is a widely used term in the industry, however, not everyone knows the accurate meaning and definition. A lack of understanding of certain industry abbreviations or terms can cost you time and money. FOB is one of the rarely recognized terms in freight shipping, yet is still important.
What is FOB in shipping? FOB definition
FOB is an international term that designated the liability for the goods being transported. Basically, FOB marks who handles the payments and responsibility for freight. FOB meaning usually comes to two interpretations, which makes it even more confusing. There are two options on how to understand FOB: free on board and freight on board. Both definitions have the same meanings, though it is recommended to use free onboard since freight on board is not a widely used term.
What does FOB (Free on Board) mean in shipping?
There are a few key papers when it comes to freight shipping, and apart from the bill of lading, FOB is an important mark that indicates who is liable for the freight and who pays all the remaining charges upon shipment arrival. Essentially, the FOB note designates which party is responsible for the freight, payments, and paperwork. Another important role of FOB in freight shipping is when your load is lost or damaged. Since FOB contains information about who is responsible for the shipment, it further specifies the process of returns, claims, or delivery refusal in case the shipment is damaged.
How is FOB used in freight shipping?
Another thing to know about the FOB term is that it always contains additional information about the party who is liable for the shipment. For example, if there is a FOB with an origin point, this means that the shipper (seller) is liable for the transportation and loading of the shipment. But once it arrives at the destination, the shipper passes the responsibility to the receiver or consignee. This way, there are four ways to use FOB for freight shipping:
- FOB Origin: If the place of origin is declared, it means the receiver owns the shipment after the BOL is signed.
- FOB Destination: In case there is a place of destination, the shipper is liable for the shipment.
- FOB Freight (Collect): If the place of origin is declared, the receiver owns the shipment after the BOL is signed.
- FOB Freight (Prepaid): In case there is a place of destination, the shipper is held liable for the shipment.