FOB shipping is something a lot of us have seen, but not many of us understand. While we’re likely to have glanced the acronym somewhere in our shipping documents at one point or another, most of us (even the experts) couldn’t say what FOB actually stands for — or what it actually means in terms of our shipping expenses.

In order to clear things up, below is an explanation of what FOB shipping really is and why it matters…

FOB shipping can mean two things: “Freight On Board” or “Free On Board”. This dual meaning is partly why there’s so much confusion around what FOB shipping really is. In both cases, however, FOB shipping tells you who’s responsible (or liable) for the products being shipped and when. In other words, if damage takes place during a certain part of the shipping process, who’s liable for the expenses.

Free on Board Shipping

When an item is being shipped “Free on Board” the person or party responsible for anything destroyed or damaged is determined by physical location. When an item passes a certain physical point, the liability for products shifts from the seller to the buyer. This distinction is pre-determined and agreed to before any shipping takes place.

When an item is being shipped internationally, you’ll often see the acronym FOB followed by the port that is being used for shipments. When this is the case, the party selling the items will take responsibility for the transport to the port, as well as any loading costs. Once loaded, the buyer then assumes responsibility for any liabilities associated with an item, this includes fees for ocean freight, insurance, and transporting the item to their locale.

Freight on Board Shipping

Although used frequently when talking about FOB shipping, the reality is that it’s not an official term. “Free on Board” is the correct phrase and using this instead of “Freight on Board” can help clear up any confusion.

FOB on Shipping Documents

When you see FOB on shipping documents, it can indicate four different things which are listed below:

1. FOB (place of origin), Freight Collect
2. FOB (place of origin), Freight Prepaid
3. FOB (place of destination), Freight Collect
4. FOB (place of destination), Freight Prepaid

When the place of origin is listed on FOB shipments, it means that the buyer takes on liability at the moment the item arrives at that physical locale, typically a port. When the place of destination is listed instead, the buyer doesn’t assume responsibility until the item arrives at the destination. In terms of the difference between “freight collect” and “freight prepaid”, “collect” means that the buyer will need to assume responsibility for the shipping payment, whereas “prepaid” means that the seller has already assumed the cost of the shipping.

The biggest reason you need to understand FOB designations is so that it’s clear who’s assuming responsibility for items that are being shipped and when.