What Is FOB (Free on Board)?

In the US, section 2-319 of the Uniform Commercial Code (UCC) sets the default meaning. Unless the parties agree otherwise, FOB at a named place is a delivery term, even when it appears only next to the price.

• FOB shipping point (the UCC says F.O.B. the place of shipment). The seller must ship the goods from that place and bear the expense and risk of putting them into the carrier's possession.
• FOB destination (F.O.B. the place of destination). The seller must, at its own expense and risk, transport the goods to that place and tender delivery there.
• FOB vessel, car or other vehicle. On top of either, the seller must also load the goods on board at its own expense and risk.

Risk of loss follows the same line under the UCC. Under section 2-509, when the contract does not require delivery at a particular destination, risk passes to the buyer once the goods are duly delivered to the carrier. When it does, risk passes when the goods are duly tendered at that destination so the buyer can take delivery.

Federal government contracts have their own version. Under FAR 47.303-1, F.o.b. origin means free of expense to the Government delivered, for example, on board the carrier's conveyance at a designated point in the city, county and State from which the shipment will be made. The contractor is responsible for loss of or damage to the goods occurring before delivery to the carrier.

Section 2-319 applies "unless otherwise agreed," and section 2-509 is subject to contrary agreement of the parties, so your contract governs. This page explains the terms; it is not legal advice.

For international sales, FOB is also one of the 11 Incoterms rules issued by the International Chamber of Commerce (ICC). There it is one of four rules for sea and inland waterway transport, written as FOB plus a named port of loading. Incoterms rules spell out who pays for and manages the shipment, insurance, documentation, customs clearance and other logistics activities. The UCC term and the Incoterms rule come from different sources: one is US commercial law, the other a set of ICC rules. If you use Incoterms, the US International Trade Administration says the parties need to clearly specify the chosen version, such as Incoterms 2020.

A manufacturer quotes a distributor $9,000 for 30 cases of valves, FOB the manufacturer's plant. Freight to the distributor's warehouse costs $450, paid by the distributor.

On those default UCC terms, risk passed to the distributor when the goods were duly delivered to the carrier. If one case is damaged on the road, that loss sits with the distributor unless their contract says otherwise. The distributor's cost is $9,000 + $450 = $9,450, or $9,450 / 30 = $315 per case.

Quoted FOB the distributor's warehouse instead, the manufacturer pays to get the goods there and carries the risk until delivery is tendered at the dock.

Shopify's B2B tools give you a few places to reflect an agreed delivery term. On a B2B draft order, you can choose a preset shipping rate, create a custom rate, or choose local delivery or pickup in store. If a shipping method is preselected on the draft, the customer can't change it at checkout.

You can also set a company location to Submit all orders as drafts for review, so you see each order before you accept it. To keep the agreed delivery term with the account, Shopify lets you store custom information about a B2B customer in metafields on the company or company location.

On Uncap's packaging and shipping supplies page, freight terms are part of the deal. Item level negotiated prices, tiers, volume breaks and freight terms live in the ERP, and Uncap Connect syncs them so the account sees its own number at login and at checkout.

• Landed cost
• Freight class
• LTL freight
• Purchase order
• Payment terms

• UCC § 2-319, F.O.B. and F.A.S. Terms (Cornell LII)
• UCC § 2-509, Risk of Loss in the Absence of Breach (Cornell LII)
• International Trade Administration: Know Your Incoterms