What does FOB mean on a shipping order?
What FOB means and why it’s more important than you think
When you see “FOB” on shipping papers, it’s defining that big moment of “I’ll take it from here” for your freight. FOB tells sellers and buyers who’s on the hook for costs and damage as goods travel from Point A to Point B. Sellers stay liable until the shipment hits the FOB location—maybe the seaport or airport. Then buyers step up, accept ownership, and handle that sucker for the rest of the ride. Defining FOB upfront avoids nasty surprises later if freight goes sideways. So know your FOB and who’s responsible where. Then you can kick back and enjoy the shipping process…at least until the next FOB term pops up!
Common FOB terms
FOB has two flavors that switch up who’s minding the store during shipping.
FOB Shipping PointÂ
With FOB shipping point, the seller’s off the hook once your goods are loaded on the truck or boat. At that point, the buyer grabs the liability baton for the rest of the trip.
FOB destinationÂ
But with FOB destination, the seller stays responsible until the goods arrive safe and sound at the buyer’s door. The handoff happens when the box is delivered, not just shipped.
The difference matters if freight gets frisky. Say your goods get damaged during transit – under FOB shipping point, the buyer’s on the hook to file claims and deal with headaches. With FOB destination, that joy goes to the seller.
FOB also determines when companies can count payment as revenue. For sellers, FOB shipping point means ringing the revenue bell once goods ship. FOB destination? No revenue love until delivered.
So pay attention to which FOB you choose during shipping negotiations. It has big implications for liability and financial statements down the road.
Who pays the shipping fees?
FOB tells you who owns the goods during shipping. But freight terms decide who foots the shipping bill.
FOB origin, freight collect? Buyer owns the goods, but pays for shipping.
FOB origin, freight prepaid? Buyer still owns the goods, but seller covers shipping costs.
With FOB destination, freight collect – seller owns goods, buyer pays freight charges.
Choose FOB destination, freight prepaid? Seller owns goods and handles shipping fees.
So FOB sets ownership, while freight terms determine who gets the shipping tab.
Unsure what combo works for your business? Talk to our team pros. We’ll help select the FOB and freight terms that keep your supply chain running smoothly