FOB shipping point vs FOB destination
Under FOB shipping point (also called FOB origin) ownership and risk pass to the buyer when the goods leave the seller's dock, so the buyer usually pays the freight and files any damage claim. Under FOB destination they pass when the goods arrive at the buyer, so the seller carries the transit risk. Both are US domestic terms, not the Incoterms rule FOB.
Two meanings of FOB
FOB is used in two different systems. In international trade, FOB is an Incoterms® rule, Free On Board: the seller delivers when the goods are loaded on the ship at a named port, and it is meant for sea and inland waterway transport only (see FOB in Incoterms 2020). In US domestic sales, 'FOB shipping point' and 'FOB destination' are shorthand on purchase orders and invoices for where title and risk pass, rooted in the Uniform Commercial Code (UCC). The words look alike, but the rules behind them are different.
FOB shipping point (FOB origin)
The seller's obligation ends when it hands the goods to the carrier at its own location. From that moment:
- the buyer owns the goods, and they belong in the buyer's inventory while in transit;
- the buyer carries the risk of loss or damage on the road and files any claim with the carrier;
- the buyer normally pays the freight, unless the terms say 'freight prepaid'.
FOB destination
The seller stays responsible until the goods are delivered at the buyer's location:
- the seller owns the goods while they travel and keeps them in its inventory until delivery;
- the seller carries transit risk and handles claims with the carrier;
- the seller normally pays the freight, unless the terms say 'freight collect'.
Side by side
| Question | FOB shipping point | FOB destination |
|---|---|---|
| Title passes | When the carrier picks up at the seller | When the goods arrive at the buyer |
| Risk in transit | Buyer | Seller |
| Freight usually paid by | Buyer (freight collect) | Seller (freight prepaid) |
| Files a damage claim | Buyer | Seller |
| Goods in transit belong to | Buyer's inventory | Seller's inventory |
| Seller records the sale | At shipment | At delivery |
The four common combinations
Because freight payment is agreed separately, US invoices often combine the two:
| Term | Title and risk pass | Freight paid by | Freight billed to |
|---|---|---|---|
| FOB shipping point, freight collect | Origin | Buyer | Buyer pays the carrier directly |
| FOB shipping point, freight prepaid | Origin | Seller | Seller pays; buyer carries the risk |
| FOB shipping point, prepaid and add | Origin | Seller pays first | Added to the buyer's invoice |
| FOB destination, freight prepaid | Destination | Seller | Seller pays and carries the risk |
| FOB destination, freight collect | Destination | Buyer | Buyer pays; seller still carries the risk |
Accounting tip: at a month end, goods shipped FOB shipping point are already the buyer's and count in the buyer's inventory even though they have not arrived. Goods shipped FOB destination stay on the seller's books until delivery.
What to use for international shipments
Courts and customs outside the US do not read 'FOB shipping point' the way a US buyer does. For export sales name an Incoterms® 2020 rule and a precise place instead:
- Goods handed over at your own dock or a container terminal: FCA (the closest match to FOB shipping point).
- Bulk or break-bulk cargo loaded on board a ship: FOB at the named port.
- Seller delivers to the buyer's door, buyer clears import: DAP (the closest match to FOB destination).
- Seller delivers and also pays import duty: DDP.
Sources
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Common questions
What does FOB shipping point mean?
Title and risk pass to the buyer when the carrier picks up the goods at the seller's location. The buyer usually pays the freight and files any damage claim.
What does FOB destination mean?
Title and risk stay with the seller until the goods arrive at the buyer's location. The seller usually pays the freight and handles any transit claim.
Is FOB origin the same as FOB shipping point?
Yes. FOB origin, FOB shipping point and FOB factory are used for the same arrangement: ownership and risk pass at the seller's end.
Who pays freight under FOB destination?
Usually the seller ('freight prepaid'), but the parties can agree 'FOB destination, freight collect', in which case the buyer pays the carrier while the seller still carries the risk.
Is FOB shipping point an Incoterm?
No. Incoterms has a rule called FOB (Free On Board) for sea freight, but 'FOB shipping point' and 'FOB destination' are US domestic terms. For international sales use an Incoterms rule such as FCA or DAP.