Freight Terms Explained

Have you ever shipped or received product and the shipping terms stated FOB Origin or FOB Destination? Freight On Board / Free On Board or FOB is a very common term in the freight industry, but one that is most misunderstood. This is because the term that follows FOB has multiple conditions such as for who pays for the shipment, who bears the shipping costs, who owns the product as it’s being shipped, and who is responsible for risk while it’s in shipment. Buyers and sellers of product will usually define in the shipping contract the shipping terms to address these conditions. But it can become an issue if only “FOB Origin” or “FOB Destination” are stated. There should be more indication since there are more standards that exist.

Below are two tables that distinguish the different types of FOB Destination and FOB Origin:

FOB Destination Term Who Pays Freight Who Bears the Cost Who Owns In-Transit Who Assumes Risk In-Transit
FOB Destination, freight prepaid Shipper Shipper Shipper Shipper
FOB Destination, freight collect Receiver Receiver Shipper Shipper
FOB Destination, freight collect & allowed Receiver (deducts from invoice) Shipper Shipper Shipper
FOB Destination, freight prepaid & charged back Shipper (adds fee to invoice) Receiver Shipper Shipper
FOB Origin Term Who Pays Freight Who Bears the Cost Who Owns In-Transit Who Assumes Risk In-Transit
FOB Origin,freight prepaid Shipper Shipper Receiver Receiver
FOB Origin,freight collect Receiver Receiver Receiver Receiver
FOB Origin,freight prepaid and charged back Shipper (adds fee to invoice) Receiver Receiver Receiver

As you can see, there are many types of variations of each freight term, which is why there is so much confusion on the subject. We hope this clears up any confusion you may have on shipping terms and who is responsible for what during shipment. If you’re ever unsure, be sure to ASK if it’s not spelled on on the shipping contract.

As a manufacturer of products, we will always ship FOB Origin with the options of prepaid and charged back or collect. This way once we fabricate product, it is the buyer’s full responsibility of freight for their own product until it reaches their destination.

Thanks for following our blog and stay tuned for our next blog post!

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