What Does FOB in Shipping Mean?
FOB in shipping means Free on Board or Freight on Board and it is a significant element of a purchase agreement. FOB terms identify the transporter, who pays for shipment charges and who is responsible for the merchandise during shipment.
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Identification
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FOB Destination specifies that the seller pay the freight charges and is liable for the goods while in transit. The buyer assumes responsibility for the goods upon arrival at the destination. FOB Destination Prepaid and Added is the same, except the seller recharges the shipping costs to the buyer.
Significance
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FOB Shipping Point and FOB Origin designates that the freight charges are paid by the seller -- the buyer is responsible for the cargo while in transit. FOB Dock Delivery and FOB Inside Delivery designate that the shipping fees are combined in the price of the merchandise. The buyer assumes liability when the merchandise is received.
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Considerations
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The party that is liable for the merchandise during shipment has the responsibility of filing a claim with the transporter if goods are lost, damaged or stolen during transit. According to the Uniform Commercial Code, if the FOB terms are not specified in the purchase agreement, the goods will ship FOB Origin. Therefore, the buyer bears the liability of the goods while in transit.
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References
- Photo Credit shipping, postage and packing image by Studio Pookini from Fotolia.com
