Understanding FOB: What is FOB in Shipping?

What is FOB in Shipping?  Free on Board (FOB) is a standardized term used in domestic shipments that identifies when the seller’s responsibilities for the goods roll over to the buyer. It’s also part of a larger Incoterms system that helps standardize global shipping and transportation of goods. 

FOB Destination Versus FOB Shipping Point

Before we explore which term is best for which situations, let’s take a closer look at the meaning of FOB destination and FOB shipping point.

• FOB shipping point, or FOB origin: The responsibility and title of the goods transfer to the buyer when they are loaded for shipment.  When goods are transferred to the carrier at the loading dock, the seller records the sale.
• FOB destination: The seller holds ownership until the goods reach the buyer’s specified location. Upon arrival, the seller records the sale.

These two options affect liability and the possibility of extra costs during transportation, as well as play into accounting.

Strategizing FOB for Your Inbound and Outbound Shipments

Think through the best FOB option for your inbound and outbound shipments. Your choices for each will most likely differ.  

For your outbound shipments, FOB shipping point will likely be your first choice. The buyer can’t request reimbursement if anything is damaged in route because they already hold ownership. You can also record the sale when the goods are loaded with the carrier giving a boost to your net income.

When it comes to inbound shipments, it will behoove you to request FOB destination. In this case, if the goods are damaged in shipping, the seller will need to reship the goods or reimburse the buyer. You also don’t have to add the costs to inventory until the goods are in your possession. 

Control Your Shipping Costs with Customodal

What is FOB in shipping?  It’s an important opportunity to manage the tradeoff between timing, liability and control.  It’s important to note that FOB terms do not control who pays for the shipment or selects the carrier. When your vendor insists on FOB shipping point for your inbound loads, whoever is paying for the shipping should have control over which carrier to use. 

Contact Customodal to have a partner on your side that can help cut costs and simplify your operations.