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SHIPPING TERMS OF SALE
FOB, Free On
Board, is a transportation term that indicates that the price for
goods includes delivery at the seller’s expense to a specified point and no
further. The FOB term is used with an identified physical location to
determine 1) the responsibility and basis for payment of freight charges,
and 2) the point at which title for the shipment passes from seller
to buyer.
The FOB location terms,
Origin and Destination, may be qualified by modifiers. The
modifier determines the payment of the transportation charges. Modifiers denote
nothing about the title of the goods or filing of claims. The most three
common modifiers are: Collect, Prepaid & Add, and Prepaid
& Allow.
Collect The carrier collects
the transportation charges from the buyer.
Prepaid & Add The seller prepays the
transportation charges, but adds the charges to the invoice for
reimbursement from the buyer.
Prepaid & Allow The seller prepays the
transportation charges and they are already included in the contract price.
TITLE & CONTROL OF
GOODS
FOB ORIGIN
The buyer assumes title
and control of the goods the moment the carrier signs the bill of lading.
The buyer assumes risk
of transportation and is entitled to route the shipment.
The buyer is
responsible for filing claims for loss or damage.
FOB DESTINATION
The seller retains
title and control of goods until they are delivered and the contract of
carriage has been completed.
The seller selects the
carrier and is responsible for the risk of transportation.
The seller is
responsible for filing claims for loss or damage.
PAYMENT TERM VARIATIONS
POINT OF ORIGIN
FOB Origin Unless qualified in the
FOB clause, the buyer is responsible for freight charges.
FOB Origin Freight
Collect Buyer
pays and bears freight charges.
FOB Origin, Freight
Prepaid Seller
pays and bears freight charges.
FOB Origin, Freight
Prepaid & Add Seller pays and invoices buyer for freight charges.
DESTINATION
FOB Destination Unless qualified in the
FOB clause, the seller is responsible for freight charges.
FOB Destination, Freight
Collect Buyer
pays and bears the freight charges.
FOB Destination,
Freight Prepaid Seller pays and bears the freight charges.
FOB Destination,
Freight Collect & Allowed Buyer pays freight charges and deducts the amount
from seller's invoice.
FOB Destination,
Freight Prepaid & Add Seller pays the freight and adds the freight charges to
its invoice to the buyer.
ANOTHER ILLUSTRATION OF
THE MEANING OF THE TERMS OF SALE
FOB Origin Buyer -- Pays freight
charges
Buyer -- Bears freight
charges
Buyer -- Owns goods in
transit
Buyer -- Files claims
(if any)
FOB Origin, Freight
Collect Buyer
-- Pays freight charges
Buyer -- Bears freight
charges
Buyer -- Owns goods in
transit
Buyer -- Files claims
(if any)
FOB Origin, Freight
Prepaid Seller
-- Pays freight charges
Seller -- Bears freight
charges
Buyer -- Owns goods in
transit
Buyer -- Files claims
(if any)
FOB Origin, Freight
Prepaid & Add Seller -- Pays freight charges
Buyer -- Bears freight
charges
Buyer -- Owns goods in
transit
Buyer -- Files claims
(if any)
FOB Destination Seller -- Pays freight
charges
Seller -- Bears freight
charges
Seller -- Owns goods in
transit
Seller -- Files claims
(if any)
FOB Destination,
Freight Collect Buyer -- Pays freight charges
Buyer -- Bears freight
charges
Seller -- Owns goods in
transit
Seller -- Files claims
(if any)
FOB Destination,
Freight Collect & Allow Buyer -- Pays freight charges
Seller -- Bears freight
charges
Seller -- Owns goods in
transit
Seller -- Files claims
(if any)
FOB Destination, Freight
Prepaid Seller
-- Pays freight charges
Seller -- Bears freight
charges
Seller -- Owns goods in
transit
Seller
-- Files claims (if any)
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