Legal Definitions - FOB

FOB stands for Free On Board. It is a shipping term used in commercial contracts to define the point at which the responsibility for goods, including the risk of loss or damage, and the cost of shipping, transfers from the seller to the buyer.

Essentially, FOB clarifies who is responsible for the goods while they are in transit and who pays for the transportation costs. There are two primary types:

• FOB Shipping Point (or FOB Origin): This means the buyer assumes responsibility for the goods and pays for shipping costs as soon as the goods are loaded onto the carrier at the seller's location (the "shipping point"). The buyer bears the risk of loss or damage during transit.
• FOB Destination: This means the seller retains responsibility for the goods and pays for shipping costs until the goods are delivered to the buyer's specified location (the "destination"). The seller bears the risk of loss or damage during transit.

Examples:

• Example 1 (FOB Shipping Point):

  A small business, "Artisan Crafts Co." in Oregon, sells a bulk order of handmade ceramic mugs to a gift shop, "Coastal Gifts," in Florida. Their agreement states FOB Shipping Point.

  How it illustrates FOB: This means that as soon as Artisan Crafts Co. loads the mugs onto the delivery truck at their Oregon workshop, the risk of damage or loss transfers to Coastal Gifts. Coastal Gifts is also responsible for paying the shipping costs from Oregon to Florida. If a mug breaks during transit, it's Coastal Gifts' loss, not Artisan Crafts Co.'s, and Coastal Gifts would need to file a claim with the shipping carrier.

• Example 2 (FOB Destination):

  A large office supply distributor, "OfficeMax Pro," in Illinois, ships a pallet of printer paper to a corporate client, "Tech Solutions Inc.," in California. Their contract specifies FOB Destination.

  How it illustrates FOB: Under this term, OfficeMax Pro (the seller) retains responsibility for the printer paper and covers the shipping costs until it is successfully delivered to Tech Solutions Inc.'s office in California. If the pallet is damaged or lost before reaching Tech Solutions Inc., OfficeMax Pro is liable and must replace the goods or issue a refund, as the risk of loss remained with them during transit.