Free On Board

What Does Free On Board Mean?

Free on board (FOB) is a term used in shipping to define the party responsible for the goods during transit.

“Free on board destination” means the seller is responsible for the goods while they are being shipped, up until they reach the destination. On the other hand, “Free on board origin” means the buyer assumes responsibility for the goods as soon as they are shipped and is liable for any loss or damage that occurs during transit.

Insuranceopedia Explains Free On Board

Before shipping, the buyer and seller sign a contract that specifies the ownership of the items during transit. If the contract specifies an FOB destination, the seller retains ownership and responsibility for the goods while they are still on the ship, ensuring their safety. In contrast, with FOB origin, ownership is transferred to the buyer, who also assumes liability for any loss or damage during shipping.

The default contract is typically FOB origin unless the buyer specifically requests FOB destination in the trade agreement. The choice between FOB origin and FOB destination is often influenced by the cost of shipping and other charges, such as handling or labor costs related to the goods.