FOB in the shipping industry also stands for Free On Board (it is also occasionally written "F.O.B.", although the FOB spelling is prevalent). It is part of the terms of a purchase, and it specifies when the ownership and responsibility of goods will transfer from the seller to the purchase.
For example, suppose that you are negotiating the price for a box of umbrellas. You are in New York, the seller is in London. If the price is FOB London, or FOB Origin, you become the owner of the box at the moment the box is handed over to the carrier. It the price is FOB New York or FOB Destination, you become the owner once the freight reaches its destination.
What's the difference, you ask. Well, the moment the box becomes yours you are responsible for it; if it gets lost or damaged, it is your problem. You have to be insured or eat the loss.
Additionally, the FOB terms also include a specification of who pays the shipping.
- freight allowed: the seller pays for the freight, and hides that price in the price of the goods; there is no separate charge for the shipping.
- prepay freight & add, the seller pays for the freight and invoices it separately.
- freight collect, the buyer is invoiced by the carrier for the goods (different from COD).
See also: c.i.f, EXW, FAS, DDP
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