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FOB (Free on Board)

FOB (Free on Board) is a shipping term that sets the point where ownership and risk pass from seller to buyer. FOB Origin means the buyer takes title and risk when the goods leave the supplier's dock; FOB Destination means the seller keeps risk until delivery. It also decides who pays freight.

FOB Origin versus FOB Destination

Under FOB Origin the buyer owns the goods in transit and usually arranges and pays freight. Under FOB Destination the seller owns them until they arrive and typically covers freight. The choice affects insurance, freight cost, and when revenue is recognized.

FOB in orders and EDI

The FOB terms appear on the purchase order and invoice, often in the FOB segment of the EDI 850 and 810. Getting them right matters for freight billing and for deciding who files the claim if a shipment arrives damaged.

FOB shipping point vs FOB destination

FOB shipping point and FOB origin mean the same thing. The table shows who carries each obligation under the two basic terms.

FOB shipping point (origin)FOB destination
Title passesWhen goods leave the seller's dockWhen goods arrive at the buyer's dock
Risk in transitBuyerSeller
Freight usually paid byBuyerSeller
Files a damage claimBuyerSeller
Goods in transit belong onBuyer's booksSeller's books

Freight payment variations

The FOB point decides ownership. A second phrase decides who pays the carrier, and the two can be combined six ways.

  • FOB origin, freight collect: buyer owns the goods in transit and pays the carrier.
  • FOB origin, freight prepaid: buyer owns the goods in transit; seller pays the carrier.
  • FOB origin, freight prepaid and add: seller pays the carrier and adds the freight to the invoice.
  • FOB destination, freight collect: seller owns the goods in transit; buyer pays the carrier.
  • FOB destination, freight prepaid: seller owns the goods in transit and pays the carrier.
  • FOB destination, freight prepaid and add: seller owns the goods in transit, pays the carrier, and bills the freight to the buyer.

FOB and month-end accounting

FOB terms decide which company records goods that are on a truck at month end. Under FOB shipping point the sale generally belongs to the period the goods shipped, and the buyer counts them as inventory in transit. Under FOB destination the seller keeps them in inventory until delivery. Mismatched terms between the PO and the invoice cause cutoff errors that finance teams chase every close.

FOB in Incoterms

The FOB above comes from US domestic trade practice. Incoterms FOB (Free On Board) is a different rule used in international trade: it applies only to sea and inland waterway shipments, and risk passes when the goods are loaded on board the vessel at the named port of shipment. For container and multimodal shipments, FCA is usually the better Incoterm.

FOB in EDI

On the EDI 850 and 810, the FOB segment carries these terms. FOB01 holds the shipment method of payment, with codes such as CC for collect, PP for prepaid by seller, and PC for prepaid but charged to customer. The location and title-passage elements that follow say where ownership changes hands.

Related Terms

Bill of Lading (BOL)
A bill of lading (BOL) is a legal document a carrier issues to a shipper that lists what is being transported, who ships it, who receives it, and the agreed terms. It serves three roles at once: a receipt for the goods, a contract of carriage, and a document of title.
Purchase Order (PO)
A purchase order (PO) is a buyer's official offer to purchase goods, listing items, quantities, prices, delivery dates, and ship-to location. It becomes a binding contract once the seller accepts it. In EDI it is the 850 transaction, the document that starts most B2B order flows.
SCAC (Standard Carrier Alpha Code)
A SCAC (Standard Carrier Alpha Code) is a unique two-to-four-letter code that identifies a transportation carrier. It appears on bills of lading, EDI shipment documents, and ASNs so every party references the same carrier. The NMFTA assigns and maintains SCACs.

Learn More

EDI 850 Purchase Order GuideEDI Document Types Reference

Related Resources

Blog PostWhat Does EDI Capable Mean? Requirements GuideE-Invoicing GuideDoes Your ERP Support Peppol? What Ships Native and What Does NotE-Invoicing GuideDo You Need a Peppol Access Point? UK Costs 2026EDI GuideEDI 812 Credit/Debit Adjustment: Complete Guide

Frequently Asked Questions

FOB means Free on Board. It marks the point in a shipment where ownership and risk pass from the seller to the buyer, and it sets who pays the freight.

FOB Origin passes title and risk to the buyer at the seller's dock. FOB Destination keeps risk with the seller until the goods are delivered.

Usually the buyer, because the buyer owns the goods once they leave the seller's dock. The parties can still agree on freight prepaid, where the seller pays the carrier.

The seller pays the carrier up front and adds the freight charge to the customer's invoice.

No. Incoterms FOB applies only to sea and inland waterway shipments and transfers risk when goods are loaded on the vessel. US domestic FOB terms are used for truck and rail shipping.

Sources: ASCM supply chain terminology

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