Freight reference · Shipping terms
What does FOB mean in shipping?
FOB (free on board) on a purchase order or bill of lading names the point where freight passes from the seller to the buyer. That point decides who owns the freight in transit, who carries the risk if it's lost or damaged, who files the claim and, unless the order says otherwise, who pays the freight.
FOB says where the freight changes hands. The freight term settles who pays. By default, FOB origin leaves the freight bill to the buyer and FOB destination puts it on the seller. Most purchase orders also name a freight term (prepaid, collect, prepaid and add), which says who the carrier bills and who bears the cost, and it overrides that default.
FOB origin vs FOB destination
In US domestic shipping, FOB follows Article 2 of the Uniform Commercial Code, the sales law every state except Louisiana has adopted. These are its defaults; your purchase order or contract can change any of them.
FOB origin (FOB shipping point)
The seller's job ends when the carrier picks the freight up at the seller's location. From that moment the buyer owns it, carries the risk and, by default, pays the freight. If it's damaged in transit, the buyer usually files the claim.
FOB destination
By default the seller pays the freight, and owns it and carries the risk until the carrier offers it for delivery at the buyer's location. Damage in transit is usually the seller's claim.
Most purchase orders add a freight term, prepaid or collect for example, and that term overrides FOB's default on who pays. Ownership and risk still follow the FOB point.
Sources: UCC § 2-319 (what each FOB term requires of the seller, including the expense), § 2-509 (when risk of loss passes) and § 2-401 (when ownership passes).
Who pays: freight terms on the bill of lading
The bill of lading tells the carrier who to bill. It has three choices:
- Prepaid: the shipper pays the carrier.
- Collect: the receiver (consignee) pays the carrier.
- Third party: someone else is billed, such as a broker or the buyer's freight account.
Purchase orders often add who ends up paying. Prepaid and add means the seller pays the carrier and adds the charge to the buyer's invoice. Prepaid and allowed means the seller pays and absorbs it. Collect and allowed means the buyer pays the carrier and deducts it from the seller's invoice.
The common combinations
The usual meaning of each pairing. Your contract has the final word.
| Term | Owns the freight in transit | Pays the carrier | Pays in the end |
|---|---|---|---|
| FOB origin, freight collect | Buyer | Buyer | Buyer |
| FOB origin, freight prepaid | Buyer | Seller | Seller |
| FOB origin, freight prepaid and add | Buyer | Seller | Buyer, added to the invoice |
| FOB destination, freight prepaid | Seller | Seller | Seller |
| FOB destination, freight collect | Seller | Buyer | Buyer |
| FOB destination, freight collect and allowed | Seller | Buyer | Seller, deducted from the invoice |
Who files a claim for damaged freight
Usually whoever owned the freight in transit: the buyer under FOB origin, the seller under FOB destination. Who paid the freight bill doesn't change that. Under FOB origin, freight prepaid, the seller paid for the shipment but the buyer owns the claim.
Whoever files, the claim is decided mostly at delivery: damage or a shortage has to be written on the delivery receipt before anyone signs. Our proof of delivery guide covers what to write. If you booked the shipment with Freight Sidekick, we prepare and file the claim for you; see how freight claims work.
FOB in Incoterms is a different rule
In international trade, FOB is one of the Incoterms 2020 rules, and it applies only to shipments by sea or inland waterway. The seller's part ends when the goods are loaded on board the vessel at the named port of shipment, and the seller handles export clearance. That is not the same as FOB on a US purchase order or bill of lading, which applies to any domestic shipment. For an international sale, settle the Incoterms rule with your trading partner and your customs broker.
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