Meaning of Freight Terms Specified in the Uniform Commercial Code (UCC)
Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant
Freight, transportation, ownership, and risk of loss are not very well understood concepts in the purchasing community. Indeed, many buyers confuse receipt with delivery. Let’s examine the most commonly used freight terms for delivery of good within the bounds of US trade and associated risk of loss.
First, understand that, delivery according to the UCC, is an intangible concept. Delivery occurs when and where the seller voluntarily transfers effective ownership of goods to the buyer. Once delivered, the rights of ownership and risk of loss rests with the buyer. This is different from receipt which occurs when buyer takes physical possession of the goods.
- Free on Board (FOB) place of shipment or shipment contract
- Free on Board (FOB) place of destination or destination contract
- Free on Board (FOB) vessel, car, or other vehicle
- Free Along Side (FAS) vessel (watercraft)
|
Terms |
Payment of Initial Freight Charge |
Bears Final Freight Cost |
Owns Goods in Transit |
Files Claims, if any |
| FOB Destination, Freight Prepaid (Allowed) |
Seller |
Seller |
Seller |
Seller |
| FOB Destination, Freight Collect |
Buyer |
Buyer |
Seller |
Seller |
| FOB Destination, Freight Prepaid and Added (Charged back to Buyer on invoice) |
Seller |
Buyer |
Seller |
Seller |
| FOB Shipping Point, Freight Prepaid (Allowed) |
Seller |
Seller |
Buyer |
Buyer |
| FOB Shipping Point, Freight Collect |
Buyer |
Buyer |
Buyer |
Buyer |
| FOB Shipping Point, Freight Prepaid and Added (Charged back to Buyer on invoice) |
Seller |
Buyer |
Buyer |
Buyer |
For those engaged in foreign trade, see INCOterms