In Business, what is Free on Board?

Free on board is a term that is used to describe a specific process of shipping goods. Sometimes referred to as freight on board or simply FOB, the process entails shipping the customer order via a vessel that is requested by the buyer. The obligation of the seller is considered fulfilled once the order has been removed from the hold of the ship and deposited on the dock.

The use of free on board shipping is in common use around the world. In actual practice, FOB helps to establish the exact point in the delivery process when the seller relinquishes responsibility for the goods, and the buyer assumes that responsibility. With this type of shipping situation, the seller is responsible for any damages that occur to the order up to the time that the goods cross over the rail of the ship. From that point forward, the seller is responsible for the condition of the goods.

For example, if goods are shipped as free on board, the seller will arrange for the goods to be shipped on a vessel that meets with the approval of the buyer. The seller handles all details surrounding the delivery of the goods to the dock and the loading of those goods into the hold of the ship. At the point of destination, the seller also arranges for the goods to be removed from the hold, and deposited on the dock. Once the goods are off the vessel, the buyer must make arrangements to remove them from the dock and transport them to the buyer’s place of business, a process known as customer arranged pickup.

In the event that the goods are damaged while still on board the ship, the seller is responsible for replacing the goods, or refunding any payments received on the order up to that point in time. Should the goods be damaged while setting on the dock at the destination and awaiting pickup by the buyer, the seller does not have any liability. Once the goods are off the ship used to transport the order, the seller is no longer responsible for the condition of any of the items included in the order.

It is important to note that the exact application of free on board shipping may vary somewhat from one country to the next. For this reason, buyers should always make sure they understand what the seller means when offering the free on board option. By obtaining detailed information about how the shipment will be handled, and at what point the seller must assume responsibility for the shipped goods, the chances of a miscommunication between the buyer and the seller is greatly minimized.