FOB Origin or FOB Destination? Shipping Terms of Sale
Shipping Terms of Sale – FOB Origin or FOB Destination?
I had a customer ask me today about about shipping terms of the sale such as FOB Origin & FOB destination, and more specifically, when the freight became the property of their customer. I quickly started to think of the typical definitions I remembered from studying business in school, but thought I should dig a little deeper before responding. I did a quick search about the general meaning of the terms on Wiki and here’s what I found out:
(To visit Wikipedia page this was snipped from click here)
Common knowledge, possibly, pointing to the contrary, based on this info, the usage of the terms “FOB Origin” may or may not still indicate buyer is to pay shipping costs and take responsibility once the shipment leaves shipper’s warehouse unless both parties either understand this to be the case or state law says it is the case, depending on the state. Same applies when using “FOB Destination.” Since these long used terms may no longer have clear legal significance per the info above, it may be important to have the intended meanings of each clearly spelled out and agreed to by the parties to the transaction prior to shipping the load to avoid dreaded issues afterwards.
The potential for additional disputes and/or confusion even when using common “FOB Origin” & “FOB Destination” terminology, regarding which party is responsible when loss or damage occurs, arises when the freight is damaged in transit by the carrier. In a perfect world, the carrier would take responsibility and the shipment would have been confirmed to be properly insured prior to shipping with the carrier or the broker and a check would soon be in the mail and a replacement could be quickly sent. The reality is most shipments are shipped vastly under insured for one reason or another, which is why it’s not only important to make sure it’s adequately insured but to also choose carriers to haul the freight that are actually known to pay and honor legitimate claims. Further, many carriers currently offer only 50c-$1.00/lb insurance and most shippers pay no attention to carriers’ stated liability coverage. Also, there are specific receiving criteria that must be met in order for the carrier to take responsibility for damage they caused.
For these reasons, things can get sticky, making it ever more important to clearly specify the shipping/receiving requirements for both parties by both parties and possibly have them agreed to in writing before shipping to avoid disputes over liability when the freight turns up damaged. Specifically, filling in the total box count and forcing the carrier to sign for that amount at pick up and inspecting the entire shipment and counting the pieces at delivery to confirm there is no damage and nothing is missing – forcing the carrier to sign for loss or damage as a condition of delivery – are instrumental steps to protect both parties. By agreeing to do this up front, it eliminates a situation where something shipped “FOB Destination” arrives damaged or short and consignee didn’t force carrier to accept liability. Now they argue it wasn’t their responsibility since it was shipped “FOB Destination” and now seller can’t collect from the carrier since carrier possesses a clear delivery receipt! Who’s responsible? Or, vice versa, a shipment moves “FOB Origin” and shipper failed to make carrier sign for actual piece count, alleviating carrier’s responsibility to deliver anything other than a number of overall packaging units and not the total pieces within those units. Shipment turns up short. Who’s responsible?
In closing, simply using the terms “FOB Origin or FOB Destination” doesn’t really cover the gamut of potential problems that may arise in regard to terms of sale and may not even mean what each party thinks!
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