FOB shipping point vs FOB destination: freight terms and the bill of lading
The short version
- FOB is a delivery term in the sales contract. It sets where risk of loss passes from seller to buyer, and, unless the contract says otherwise, usually where title passes too.
- Freight terms on the bill of lading set who the carrier bills. FOB destination with freight collect, for example, is a valid combination.
- The party that bears the loss in transit usually pursues the freight claim. Under FOB shipping point that is normally the buyer, even when the seller paid the freight.
- The bill of lading is the receipt and the contract of carriage. What it says about weight, class and value decides what you are billed and what you can recover.
- Carriers limit freight liability by weight, not by the goods’ value, unless more is declared on the bill of lading.
FOB shipping point, also called FOB origin, means risk of loss passes to the buyer when the seller hands the goods to the carrier. FOB destination means the seller keeps the risk until the goods are delivered. Unless the contract says otherwise, title usually passes at the same point. The FOB term comes from the sales contract and decides who bears a loss in transit, and so, usually, who pursues the claim. Who pays the carrier is a separate question, answered by the freight terms on the bill of lading: prepaid, collect or third party. The two are often confused because they usually point the same way, but they do not have to.
What FOB means
FOB stands for free on board. In US domestic sales it is defined by the Uniform Commercial Code, section 2-319, as a delivery term:
- FOB the place of shipment: “the seller must at that place ship the goods … and bear the expense and risk of putting them into the possession of the carrier.”
- FOB the place of destination: “the seller must at his own expense and risk transport the goods to that place and there tender delivery of them.”
Those are the defaults, which apply “unless otherwise agreed”. The UCC deals with title and risk of loss in separate sections (2-401 and 2-509), and a contract can set each one differently, for example by keeping title with the seller until payment. A purchase order can also change who pays the freight while keeping the FOB point, which is what the combined terms in the next section do.
FOB shipping point vs FOB destination
| Usual result, unless the contract says otherwise | FOB shipping point (origin) | FOB destination |
|---|---|---|
| Risk of loss passes to the buyer | When the carrier takes the goods at the seller’s dock | When the goods are delivered to the buyer |
| Title passes to the buyer | Usually at the same point, unless the contract sets it separately | Usually on delivery, unless the contract sets it separately |
| Bears loss or damage in transit | Buyer | Seller |
| Usually pursues the freight claim | Buyer | Seller |
| Pays freight by default | Buyer | Seller |
| Usually chooses the carrier | Buyer, often on its own account | Seller |
| Goods count in the buyer’s inventory | From shipment | From delivery |
Based on UCC 2-319, 2-401 and 2-509 and standard procurement freight-term definitions. The contract can vary any of these.
FOB and freight terms together
Most purchase orders state both, as in “FOB origin, freight prepaid and add”. The FOB point decides who bears the risk in transit; the freight term decides who pays the carrier and who finally bears the cost. “Prepaid” on its own says only that the shipper pays the carrier: the charge can still be added to the customer’s invoice. Where the seller absorbs it, purchase orders say “prepaid and allowed”.
| Term | Carrier bills | Freight cost finally borne by | Bears risk in transit, usually pursues claim |
|---|---|---|---|
| FOB origin, freight collect | Buyer | Buyer | Buyer |
| FOB origin, freight prepaid and allowed | Seller | Seller | Buyer |
| FOB origin, freight prepaid and add | Seller | Buyer, added to the seller’s invoice | Buyer |
| FOB destination, freight prepaid and allowed | Seller | Seller | Seller |
| FOB destination, freight collect | Buyer | Buyer | Seller |
| FOB destination, freight prepaid and add | Seller | Buyer, added to the seller’s invoice | Seller |
Sources: North Dakota Office of Management and Budget, freight terms matrix; Arkansas Tech University, freight terms. Compiled by ebb Logistics. The usual results; the contract can vary them.
Third party billing is a freight-term option rather than a separate FOB term: the carrier bills a party named on the bill of lading that is neither shipper nor consignee, often the buyer’s logistics provider or the parent company paying for a subsidiary. It changes who pays the carrier, not who bears the risk.
“Prepaid and add” is worth checking. The seller ships on its own carrier rates and passes the charge through, sometimes with a handling fee, and the buyer pays rates it did not negotiate. A buyer with its own LTL agreement should compare its own landed cost, freight collect on its own account, with the supplier’s prepaid-and-add charge, lane by lane.
What a bill of lading is
A bill of lading is the document a carrier issues when it takes freight. It does three jobs at once:
- A receipt for the goods, listing what was tendered: pieces, weight and description.
- The contract of carriage, incorporating the carrier’s terms and its rules tariff. Federal law requires a motor carrier to issue one for property it receives (49 U.S.C. 14706).
- A document of title, in the case of an order bill of lading, which must be surrendered to take delivery. Most domestic LTL moves on a straight bill of lading, consigned to a named party and not negotiable.
Most LTL carriers incorporate the terms of the National Motor Freight Classification’s Uniform Straight Bill of Lading, sometimes as of a particular date. FedEx Freight, for example, applies the version in NMFC Item 365 as it stood on August 1, 2016. Those terms, and the carrier’s rules tariff, govern liability and claims, so read them before a claim, not after.
What goes on a bill of lading
| Field | Why it matters |
|---|---|
| Shipper and consignee | Who tendered the freight and who receives it |
| Freight terms and bill-to party | Prepaid, collect or third party: who the carrier invoices. A blank or wrong box is billed to the wrong party. |
| Pieces, packaging and weight | The basis of the charge. A reweigh that disagrees is rebilled. |
| Description, NMFC item and sub, and class | Decides the class and rate. Missing or wrong entries lead to reclassification. |
| Dimensions and density | For density-classed items, the evidence that protects the class on inspection |
| Accessorials | Liftgate, residential, appointment or inside delivery. Services added after pickup are billed at the carrier’s rules-tariff rates. |
| Declared or released value | Sets the carrier’s maximum liability for the shipment |
| Hazardous materials | Required entries and emergency contact where applicable |
| Purchase order and reference numbers | How the freight bill is matched to the order, and to the right cost center |
Many avoidable LTL charges start here. A class taken from a supplier rather than checked, a density left blank, or an accessorial that was needed but not requested each produces a corrected invoice after delivery, usually with an inspection or redelivery fee. Our guides to NMFC lookup and freight class and density cover the classification fields in detail.
Loss, damage and the freight claim
Under the Carmack Amendment, 49 U.S.C. 14706, a motor carrier is liable for “the actual loss or injury to the property”, but may limit that liability to a value declared by the shipper or agreed in writing, the released value. Carriers publish those limits in their rules tariffs. FedEx Freight’s Item 420 limits liability on new goods to the invoice cost, up to $25 per pound per package or $100,000 per incident, and on used goods to 50 cents per pound per package or $10,000 per incident. Excess coverage for new goods can be requested on the bill of lading, up to $50 per pound in total, at 3% of the excess with a $147 minimum.
That makes the FOB term matter when something goes wrong. The statute gives the right to recover to the person entitled to recover under the receipt or bill of lading. In practice that is usually the party that bears the loss, the buyer under FOB origin and the seller under FOB destination, whoever paid the freight, though the contract can assign the claim. The statute gives at least 9 months to file a claim and 2 years to sue after a claim is denied; carriers cannot set shorter periods. Note any visible damage on the delivery receipt before signing, keep the packaging, and file in writing with the bill of lading, the delivery receipt, the invoice for the goods and photographs.
Because per-pound limits can fall far short of the goods’ value, many shippers of high-value freight buy cargo insurance as well. Our guide to shipping insurance vs declared value explains the difference for parcel and freight.
FOB in international shipping
FOB is also one of the International Chamber of Commerce’s Incoterms, where it means something narrower: the seller delivers the goods on board a vessel at the named port of shipment. The ICC’s Incoterms 2020 rules reserve FOB for sea and inland waterway transport, and recommend FCA for goods handed to a carrier before loading, such as containers. In a domestic US contract, FOB shipping point and FOB destination take their meaning from the UCC instead. If a contract uses FOB, it should say which, and name the place.
Parcel shipments
FOB terms apply to parcel sales too: the contract decides who owns a package in transit. But UPS and FedEx bill under their own options, shipper, receiver or third party, and limit liability to $100 per package unless more value is declared. A seller shipping FOB destination by parcel carries the loss on anything worth more than that unless it declares value or insures.
What this means for your freight costs
Freight terms are a procurement decision as much as a logistics one. Buying FOB origin, freight collect, lets a business ship inbound freight on its own negotiated LTL rates instead of paying a supplier’s rates plus a markup, where its own rates are lower. Accurate bills of lading prevent reclassifications and after-the-fact accessorial charges. Our LTL freight audit checks every freight bill against the bill of lading and your agreement, and our LTL contract negotiation sets the rates that make freight collect worth using.
Frequently asked questions
What does FOB mean in shipping?
Free on board. In a US sales contract it names the point where ownership and risk pass from seller to buyer: the seller’s shipping point, or the buyer’s destination.
Who pays freight under FOB shipping point?
By default the buyer, but the freight terms can change that. Under FOB shipping point, freight prepaid, the seller pays the carrier while the buyer still bears the risk in transit; whether the seller then adds the charge to its invoice depends on whether the terms say “and add” or “and allowed”.
Who pays freight under FOB destination?
By default the seller. Under FOB destination, freight collect, the buyer pays the carrier while the seller keeps the risk until delivery.
Who files the freight claim?
The person entitled to recover under the bill of lading, which is usually the party that bears the loss: the buyer under FOB shipping point, the seller under FOB destination. Who paid the freight does not change that, though the contract can assign the claim.
Is FOB origin the same as FOB shipping point?
Yes. Both mean risk of loss passes to the buyer when the carrier takes the goods at the seller’s location, and, unless the contract says otherwise, title usually passes then too.
What is the difference between freight prepaid and freight collect?
Prepaid means the carrier bills the shipper; collect means it bills the consignee. Prepaid and add means the shipper pays the carrier and then adds the charge to its invoice to the buyer; prepaid and allowed means the shipper absorbs it.
Is a bill of lading a contract?
Yes. It is the receipt for the freight and the contract of carriage, incorporating the carrier’s terms and rules tariff. An order bill of lading is also a document of title.
What happens if the bill of lading is wrong?
The carrier bills from what it finds. A different weight or class on inspection is rebilled, often with a fee, and services not shown on the bill of lading are added after delivery. Wrong freight terms send the invoice to the wrong party.
Sources
- Uniform Commercial Code, section 2-319, F.O.B. and F.A.S. terms; section 2-401, passing of title; section 2-509, risk of loss.
- 49 U.S.C. 14706, liability of carriers under receipts and bills of lading.
- FedEx Freight, 100-Y Rules Tariff: bill of lading terms and Item 420, Carrier Liability, read November 1, 2026.
- North Dakota Office of Management and Budget, freight terms matrix; Arkansas Tech University, freight terms.
- International Chamber of Commerce, Incoterms 2020.