Lets talk about shipping terms and where the responsibility lies for a shipment. The correct definition for FOB Point is Free-on-Board aka freight on board and the term FOB is often misunderstood, even by the professionals.
The FOB point is important as it ascertains:
- when legal title of the goods being shipped transfers to the buyer. Say you were purchasing a bulk liquid like a fuel or a chemical, the FOB point could be origin, destination, buyers tank or even the intake nozzle at point of delivery. As you can see, depending on the commodity, having the proper FOB point is crucial.
- who is responsible for handling damaged goods or freight claims with the carrier in the event they are lost or damaged during shipment. An example: FOB Destination, Freight collect means: Buyer — Pays and is responsible for freight charges, Seller — Owns goods in transit, Seller — Files any damage claims (if any). Another potential headache area so choose wisely.
- who pays the carrier.
Many will suggest or argue that FOB destination is the most beneficial because the vendor pays the transportation charges, however upon further inspection you will realize the charges are to be borne by the buyer, since freight costs will be included in the delivered price charged by the vendor. In essence, you are licensing the vendor to spend your money.
Again, commodity dependent, a vendor may use a carrier which may not meet your safety standards or spill response guidelines, so do your due diligence and if it warrants perform a site audit on the carrier being used regardless of the FOB Point. By the way, included in the RFQPro Premium template pack is a comprehensive sample site audit form.
There are many variations in FOB terms – FOB origin, freight collect or FOB Destination, freight collect and allowed and so on. As a purchasing professional you need to know your FOB lingo. The following template explains all possible options and will help you select the correct terminology for your PO’s, supply agreements, RFQ’s, RFP’s and more.
Subscribe and this FOB template (RFQ33) will be included in your FREE Welcome Pack. Download, print and post it in your work area.