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What The Heck is FOB?!

FOB

If you’re thinking about owning a store or launching a line, you must know the importance of  FOB, which stands for Freight On Board or Free on Board. It is a terminology that retailers, brands, and manufacturers use to indicate who is responsible for paying transportation charges, as well as the transfer of product ownership  from buyer to seller. This is why having knowledge of FOB is very important to your business because of the financial liabilities that you can incur from shipping costs and possible loss of goods during freight. So what do you do? Familiarize yourself with the different FOB terms so that you can protect your business.

Destination, Freight Prepaid

  • This means that the seller pays for freight (shipping) charges and owns the goods while in transit. So, if any damages or theft happens during freight, the seller is responsible.

Destination, Freight Collect:

  • This means that the buyer pays for freight (shipping) charges and the seller owns the goods while in transit.  So, if any damages or theft happens during freight, the seller is responsible.

Destination, Freight Collect & Allowed:

  • This means that the buyer pays for freight (shipping) charges but then deducts that amount from the invoice for the seller to bear. The seller owns the goods while in transit. So, if any damages or theft happens during freight, the seller is responsible.

Origin, Freight Prepaid:

  • This means that the seller pays for the freight (shipping) charges  while the buyer owns the goods in transit. So, if any damages or theft happens during freight, the buyer is responsible.

Origin, Freight Collect:

  • This means that that buyer pays for freight (shipping) charges and owns the goods while in transit. So, if any damages or theft happens during freight, the buyer is responsible.

Origin, Freight Prepaid & Charged Back

  • This means that the seller pays for freight (shipping) charges but then adds that amount to the total invoice for the seller to bear. The buyer also owns the goods while in transit. So, if any damages or theft happens during freight, the buyer is responsible.

Destination, Freight Prepaid & Charged Back

  • This means that the seller pays for freight (shipping) charges but then adds that amount to the total invoice for the seller to bear. The seller also owns the goods while in transit. So, if any damages or theft happens during freight, the  seller is responsible.

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Lyn Deutsch says:

Thank you for this! I didn’t know there are so many terms for FOB. excellent post!

Thanks for the helpful and informative post!

Mary Vallarta says:

You are very welcome!

Marisa says:

Great post. This will help a lot of people. I know when I started I had a hard time finding this info. :)

Mary Vallarta says:

Hi Hannah! It really depends on which perspective you’re coming from. As the vendor, you would want Origin/Freight Prepaid because the retailer would pay for shipping and own the goods immediately after it leaves your warehouse. As the retailer, I would want Destination/Freight Prepaid because the vendor would pay for shipping and own the goods until it arrives to my store or DC (distribution center). Destination/Freight is most commonly used but retailers will opt for the other if it means they can get a better deal.