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Free On Board Overview
Summary: This page gives the definition of and examples for how UCSC and suppliers handle ownership of any item while in transit.
What does FOB mean?
FOB is the abbreviation for "free-on-board."
What is the purpose of establishing FOB terms?
The FOB terms are an important part of the purchase contract. The FOB terms describe:
- who selects the carrier
- who pays the freight charges
- who has title to the goods during shipment
What are the key differences between FOB Destination and FOB Origin?
FOB Destination is the standard and most common FOB term used by UCSC buyers. The seller is the owner of goods while in transit and is responsible for any loss or damage up to the time of delivery. Other ways of expressing the FOB Destination are "FOB UCSC" and "FOB Santa Cruz."
Rarely, a UCSC buyer will use the shipping term FOB Origin or FOB Shipping point. You would use FOB Origin if you were ordering something that's so huge and heavy that you want to negotiate the shipping separately from the purchase of the goods. For instance, a railcar full of paper or a truckload full of anchor chain.
Another reason to use FOB Origin would be if you wanted all of your shipping to be done by a specific carrier with whom you had negotiated favorable pricing, terms and conditions.
What if no FOB terms are stated in the purchase order?
When no FOB terms are discussed or not mentioned in the contract or purchase order, then, in accordance with the Uniform Commercial Code (UCC) the term is FOB Origin. The buyer is then responsible for freight and damaged goods.
Buyer Beware: Always include FOB Destination on your purchase orders unless you have a reason to want FOB Origin.
What are my choices?
When you are completing a purchase order, you are asked to enter an FOB code. The following summary of FOB and freight terms (prepaid, allowed, or collect) should help you choose the best terms for a specific purchase.
1. FOB Destination, freight allowed
- Seller pays freight charges
- Seller owns goods in transit
- Seller files any damage claims
Title passes to the buyer when freight reaches its destination. Freight will be paid by the seller and the cost of freight is figured into the cost of goods. (NOTE: Freight is never "free." The cost of freight is included somewhere.)
2. FOB Destination, prepay freight & add
- Seller pays freight charges, recharges to buyer
- Seller owns goods in transit
- Seller files any damage claims
Title passes to the buyer when freight reaches its destination. Freight will be paid by the seller, but the cost of the freight will be added to the invoice for the sale of goods.
3. FOB Destination, freight collect
- Buyer pays freight charges
- Seller owns goods in transit
- Seller files any damage claims
Title passes to the buyer when freight reaches its destination. Buyer will be invoiced by the carrier for the freight charges. Do not confuse with "collect on delivery" which would require a check for freight in-hand to receive the shipment.
4. FOB Origin, freight allowed
- Seller pays freight charges
- Buyer owns goods in transit
- Buyer files any damage claims
Title passes to the buyer at the moment the goods are transferred to the carrier. The buyer must file the claim as the owner of freight which is lost or damaged en route to the destination. Freight will be paid by the seller and the cost of freight has already been figured into the cost of goods.
5. FOB Origin, prepay freight & add
- Seller pays freight charges, recharges to buyer
- Buyer owns goods in transit
- Buyer files any damage claims
Title passes to the buyer at the moment the goods are transferred to the carrier. The buyer must file the claim as the owner of freight which is lost or damaged en route to the destination. Freight will be paid by the seller, but the cost of the freight will be added to the invoice for the sale of the goods.
6. FOB Origin, freight collect
- Buyer pays freight charges
- Buyer owns goods in transit
- Buyer files any damage claims
Title passes to the buyer at the moment the goods are transferred to the carrier. The buyer must file the claim as the owner of freight which is lost or damaged en route to the destination. Buyer will be invoiced by the carrier for the freight charges. Do not confuse with "collect on delivery" which would require a check for freight in-hand to receive the shipment.
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Last revised: April 03, 2008 (am)
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