# 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 passes | When goods leave the seller's dock | When goods arrive at the buyer's dock |
| Risk in transit | Buyer | Seller |
| Freight usually paid by | Buyer | Seller |
| Files a damage claim | Buyer | Seller |
| Goods in transit belong on | Buyer's books | Seller'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.

## FAQ

### What does FOB mean in shipping?

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.

### What is the difference between FOB Origin and FOB Destination?

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.

### Who pays freight under FOB shipping point?

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.

### What does FOB freight prepaid and add mean?

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

### Is FOB the same in Incoterms?

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](https://www.ascm.org)