free on board
Definition
Free on Board is a shipping term that tells you exactly which party is responsible for goods during transit and who pays the freight costs. When you see 'FOB Origin,' the buyer takes ownership and responsibility the moment the seller loads the goods onto the shipping carrier, meaning the buyer pays for shipping and absorbs any losses if something goes wrong in transit. When you see 'FOB Destination,' the seller stays responsible for the goods all the way until they arrive at the buyer's door.
Example
You order 500 custom mugs from a supplier with terms that say 'FOB Origin,' and the shipping truck gets into an accident and destroys your mugs, so you are on the hook for the loss even though you never received them. If the contract said 'FOB Destination,' the supplier would bear that loss.
Watch Out
Always check your purchase orders and supplier contracts for FOB terms before signing, because a single word can mean the difference between your insurance needing to cover a shipment disaster or your supplier's insurance covering it.
See which terms appear in your contract?
This definition is for informational purposes only and does not constitute legal advice. Please consult with a licensed attorney for legal guidance.