FOB stands for "Free on Board" and is a shipping term used to indicate when liability and ownership of goods is transferred from a seller to a buyer. FOB terms are used to define the point in the supply chain when a buyer or seller becomes liable for the goods being transported. The FOB terms help determine ownership, risk, and transportation costs between buyers and sellers. Shipping orders and contracts often describe the time and place of delivery, payment, when the risk of loss shifts from the seller to the buyer, and which party pays the costs of freight and insurance.

There are two types of FOB terms: FOB origin and FOB destination. FOB origin, or shipping point, means that the buyer accepts the title of the goods at the shipment point and assumes all risk once the seller ships the product. The buyer is responsible if the goods are damaged or lost while in transit. For FOB destination, the seller retains the title of the goods and all responsibility during transit until the items reach the buyer. The seller is responsible for replacing damaged or lost items until the point where the goods have reached their final destination.

FOB terms are important for a number of reasons, but most importantly, shippers and carriers need to understand FOB designations in damage situations. FOB terms affect how and when a business will account for goods in its inventory. Shipping costs are usually tied to FOB status, with shipping paid for by whichever party is responsible for transit.

In summary, FOB is a shipping term that defines the point in the supply chain when a buyer or seller becomes liable for the goods being transported. FOB terms help determine ownership, risk, and transportation costs between buyers and sellers. There are two types of FOB terms: FOB origin and FOB destination. FOB terms are important for accounting and damage situations, and they affect how and when a business will account for goods in its inventory.