What is a FOB (Freight on Board)

FOB is an acronym for Freight on Board. In North America, Freight on Board is a term that is commonly used when someone is shipping goods within the United States. It is a way to indicate who will pay loading and transportation costs. It is a contractual term and it indicates several things. It will indicate the place of the shipment and the place of destination and the terms in which the goods will be received and who will take responsibility for them. It will also indicate at which point the responsibility of the goods should transfer from the shipper over to the buyer. The term originally came from the United States “Foreign Trade Definitions of 1941”. This was a listing that described the buyers’ and sellers’ rights and obligations for various types of contracts in trade with foreign nations. The listing is now obsolete.

The FOB shipping point or FOB origin will tell you that the buyer pays all of the shipping costs and will take responsibility for the goods when they leave the seller’s location. The FOB destination will say that the seller intends to pay all of the shipping costs and will be responsible for the goods until the buyer or recipient takes possession of the goods.

For example, if there is a transaction to send some goods to New York City at the request of the buyer, the seller may say “FOB our warehouse in Ellsworth, Maine”. This means that the seller has offered to pay the shipping costs from their Ellsworth, Maine warehouse to New York City.

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{ 3 comments… read them below or add one }

michael kennedy January 21, 2011 at 9:37 am

from your definition of FOB

“…The FOB shipping point or FOB origin will tell you that the buyer pays all of the shipping costs and will take responsibility for the goods when they leave the seller’s location. The FOB destination will say that the seller intends to pay all of the shipping costs and will be responsible for the goods until the buyer or recipient takes possession of the goods.

For example, if there is a transaction to send some goods to New York City at the request of the buyer, the seller may say “FOB our warehouse in Ellsworth, Maine”. This means that the seller has offered to pay the shipping costs from their Ellsworth, Maine warehouse to New York City.”

this seems backward to me – is it?

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GRThompson February 19, 2011 at 9:20 pm

Michael:

You are correct. If it is FOB (Free On Board) the seller’s warehouse the buyer pays the shipping. The seller loads it, but the buyer pays the shipping.

The guy that wrote this stuff made most of it up without much background.

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GRThompson February 18, 2011 at 3:34 pm

Where do you get this stuff?

From the International Chamber of Commerce:

http://www.iccwbo.org/incoterms_faq/#2
RULES FOR SEA AND INLAND WATERWAY TRANSPORT
FAS Free Alongside Ship
FOB Free On Board
CFR Cost And Freight
CIF Cost, Insurance and Freight

From Cornell University Law School:

http://www.law.cornell.edu/ucc/2/2-319.html

A quote from the Uniform Commercial Code:

§ 2-319. F.O.B. and F.A.S. Terms.
(1) Unless otherwise agreed the term F.O.B. (which means “free on board”) at a named place, even though used only in connection with the stated price, is a delivery term under which
• (a) when the term is F.O.B. the place of shipment, the seller must at that place ship the goods in the manner provided in this Article (Section 2-504) and bear the expense and risk of putting them into the possession of the carrier; or
• (b) when the term is F.O.B. the place of destination, the seller must at his own expense and risk transport the goods to that place and there tender delivery of them in the manner provided in this Article (Section 2-503);
• (c) when under either (a) or (b) the term is also F.O.B. vessel, car or other vehicle, the seller must in addition at his own expense and risk load the goods on board. If the term is F.O.B. vessel the buyer must name the vessel and in an appropriate case the seller must comply with the provisions of this Article on the form of bill of lading (Section 2-323).

Both the International Chamber and the UCC tell you that FOB is FREE on board. How can I keep my students from surfing around and finding sites that are wrong?

It is a never ending battle.

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