FOB shipping point is a delivery term in a contract for the sale of goods. F.O.B. means free on board, and where the named place is the place of shipment the seller must ship the goods there in the manner UCC Article 2 provides and bear the expense and risk of putting them into the carrier’s possession (UCC 2-319(1)). Two defaults follow. Risk of loss passes to the buyer when the goods are duly delivered to the carrier, even where the shipment is under reservation (UCC 2-509(1)(a)), and title passes at the time and place of shipment unless the parties explicitly agreed otherwise (UCC 2-401(2)(a)).
Both are defaults the contract can move, and they do not move equally easily. The risk rules are subject to contrary agreement of the parties, and to the code’s own carve-outs for sale on approval and for the effect of breach on risk of loss (UCC 2-509(4)), while title comes off the shipment default only on an explicit agreement. The wider framing, that F.O.B. is a delivery term even where it appears only beside the stated price, and that states enact it in their own commercial codes, sits in the companion entry on FOB destination.
What the Seller Still Owes After the Dock
Risk passing at the carrier’s door is not the same as the seller walking away at it. The delivery term points directly at the shipment section, and that section keeps three duties on the seller: put the goods in the possession of such a carrier and make such a contract for their transportation as may be reasonable having regard to the nature of the goods, obtain and promptly deliver or tender in due form any document necessary to enable the buyer to obtain possession, and promptly notify the buyer of the shipment (UCC 2-504).
Those duties carry a narrow remedy. Failure to notify the buyer, or to make a proper contract of carriage, is a ground for rejection only if material delay or loss ensues (UCC 2-504). A late shipping notice on goods that arrive intact and on time does not, on its own, hand the buyer a right to reject.
The dock is also not the end of the seller’s exposure on bad goods. Where a tender or delivery of goods so fails to conform to the contract as to give a right of rejection, the risk of their loss remains on the seller until cure or acceptance (UCC 2-510(1)).
What the Buyer Books While the Goods Are in Transit
Goods still on the road at a reporting date under FOB shipping point normally belong on the buyer’s balance sheet, unless something else in the contract moves control later. The buyer picks up the inventory and the matching accounts payable when the carrier takes the goods, not when the truck arrives, and the goods leave the seller’s inventory at that same moment. That is the mirror of the cutoff under the destination term, and it is the reason a period-end inventory count and a purchase ledger can disagree by an entire truckload without either being wrong.
The delivery term is evidence of the accounting answer rather than the answer itself. Legal title and the significant risks and rewards of ownership sit among indicators of the transfer of control that include, but are not limited to, the ones the standard names (FASB ASU 2014-09, paragraph 606-10-25-30), and the full list of five is set out under FOB destination. One step comes even earlier: title cannot pass under a contract for sale before the goods are identified to that contract (UCC 2-401(1)), so a shipment drawn from an undivided bulk needs that identification before the shipping-point default does anything at all.
Because the term is a contract term rather than a shipping detail, it belongs on the purchase order that opens the transaction.
Where Inbound Freight Belongs
Under this term the buyer pays to move the goods, so freight-in, the cost of transporting purchased goods to the buyer, is a standing line rather than an occasional one. It belongs in the cost of the inventory, not in period expense. The primary basis of accounting for inventories is cost, and as applied to inventories cost means in principle the sum of the applicable expenditures and charges directly or indirectly incurred in bringing an article to its existing condition and location (Accounting Research Bulletin No. 43, Chapter 4, Statement 3).
The same chapter draws a line that a routine freight-in policy can miss. Abnormal freight, handling costs and amounts of wasted materials require treatment as current period charges rather than as a portion of the inventory cost (Accounting Research Bulletin No. 43, Chapter 4, paragraph 5A). Ordinary inbound haulage goes into the cost of the inventory. Abnormal freight does not.
A Worked Example on the Buyer’s Side
Say a buyer purchases goods sold FOB shipping point, the carrier collects them on the last business day of the period, and they are still in transit at the reporting date. The carrier invoices the buyer separately for the haul when it collects the goods.
Supplier invoice for the goods 40,000
Carrier's freight invoice to the buyer 1,200
Inventory in transit at the reporting date 41,200
Payables at the reporting date 41,200
supplier 40,000
carrier 1,200The truck’s arrival date changes nothing on either line. Handing the goods to the carrier already did.
How Federal Contracts Define F.o.b. Origin
A federal supply contract runs on its own definition. F.o.b. origin means free of expense to the Government delivered on board the indicated type of conveyance of the carrier, or of the Government if specified, at a designated point in the city, county, and State from which the shipment will be made and from which line-haul transportation service will begin. Three further handovers count too: to and placed on the carrier’s wharf or freight station, to a U.S. Postal Service facility, and, where the solicitation says so, to any Government-designated point in the same city or commercial zone as the contract’s f.o.b. origin point (FAR 47.303-1(a)). The contractor stays responsible for loss of or damage to the goods occurring before delivery to the carrier, resulting from improper packing and marking, or resulting from improper loading, stowing, trimming, blocking or bracing where the contractor loaded the shipment (FAR 47.303-1(b)).
Then the two moments come apart, which the commercial default keeps together. Title to supplies passes to the Government upon formal acceptance, regardless of when or where the Government takes physical possession, unless the contract specifically provides for earlier passage. Unless the contract specifically provides otherwise, risk of loss remains with the contractor until it passes to the Government on delivery of the supplies to a carrier where transportation is f.o.b. origin (FAR 46.505). Risk moves at the dock while title waits for acceptance.
That split has its own exception. It does not apply to supplies that so fail to conform to contract requirements as to give a right of rejection, and risk of loss of or damage to such nonconforming supplies remains with the contractor until cure or acceptance (FAR 46.505(c)).
What FOB Shipping Point Is Confused With
FOB Destination
The mirror term keeps expense, risk and title with the seller until tender at the named place, so goods in transit sit on the seller’s books instead of the buyer’s. That side, with its own cutoff and its own federal rules, is worked in FOB destination.
FOB in the Incoterms Rules
On an international order the same three letters belong to a different rule set, where FOB is Free on Board at a named port of loading for sea and inland waterway transport (International Trade Administration, Know Your Incoterms), and the domestic shipping-point term above is not an Incoterms rule at all. That set, and how FOB compares with CIF inside it, is worked in FOB destination.
Common Questions
The buyer, under the term itself. The seller’s expense obligation runs only to putting the goods into the carrier’s possession at the place of shipment (UCC 2-319(1)(a)), so the transport charge beyond that point falls to the buyer unless the contract redirects it. Read who pays the carrier and who bears the loss as two separate lines: a contract can instruct the seller to prepay the freight and still leave the risk with the buyer from the dock.
FOB is the delivery term above. In the code’s own vocabulary, C.I.F. means the price includes in a lump sum the cost of the goods and the insurance and freight to the named destination, while C. & F. means the price includes cost and freight to that destination and imposes the same obligations and risks except the obligation as to insurance (UCC 2-320).
If your firm is closing books where these cutoffs decide the number, a trial task puts an offshore team on your own files before anything live is at stake.
