Next video:
Loading the player...

Free On Board is a historical legal term referencing the passing of title and liability between buyers and sellers of goods. Free On Board originally referenced goods transferred by ship. Since it is a legal term, and has changed in meaning over the years, some countries may have a different legal definition for it, so you'll want to consult a local attorney before using it in a contract or transaction.

Free On Board is often abbreviated as FOB.  Usually, a location follows the FOB designation.  For example, you might see FOB shipping point, also referred to as FOB origin, or FOB destination. The location is the key to how FOB is used.  The location designation is where ownership is transferred.  It’s also where responsibility for shipping costs shift from the seller to the buyer.  This is the point at which the buyer assumes responsibility to insure the goods, and suffers any damages should an accident happen while the goods are transported to another location.  

Also keep in mind that the location is where title transfers occur, meaning this is where the goods become an asset on the buyer’s balance sheet. This becomes really important (at least to accountants) during cut off periods.

For example, say Hawker Company in New York City sold one million golf balls to Slammer, Inc., in Los Angeles.  The sales price was five cents per golf ball. The sale took place on December 29th.  Hawker shipped the golf balls on December 30th and Slammer received them on January 3rd. 

Slammer’s accountants are closing the books for the year end, and need to determine if the golf balls should be included in their inventory.  If the terms of the sale are FOB shipping point New York, then title to the golf balls passes to Slammer on December 30 (the shipping date), and the inventory assets account in Slammer’s books will be fifty thousand dollars higher. If the terms are FOB destination (which was Los Angeles) then Slammer’s year-end inventory assets account will not include the fifty thousand dollars in golf balls, because Slammer did not get title to the goods (and thus did not own them) until January 3rd of the next year.

Related Articles
  1. Investing

    What does DDP Mean?

    Delivery duty paid (DDP) is a shipping term specifying that the seller is responsible for all costs associated with delivery of the goods to the buyer. It is usually used when goods are exported ...
  2. Investing

    Golf Industry Ripe For Consolidation

    Golf is coming out of a multi-year slump with a bright outlook.
  3. Insights

    Nominal vs. Real GDP

    GDP stands for gross domestic product and is the measure of the total economic output of the goods and services of a country.
  4. Investing

    Major Companies That Lose Money On Shipping (AMZN)

    We look at some of the big companies in the home delivery business that have high shipping costs and how they mitigate this.
  5. Investing

    Nike Hasn’t Abandoned Golf (NKE)

    Nike remains interested in the game, and for good reason.
  6. Insights

    First Olympic Golf in a Century; But is the Industry Dying?

    Golf is once again an Olympic sport, but its future remains uncertain.
  7. Investing

    What does Free Carrier Mean?

    Free carrier is a trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. Costs for transportation and risk of loss transfer ...
  8. Investing

    Time To Swing Into Golf Stocks?

    Golf-related stocks could put investors right out of the current rough patch.
  9. Investing

    Understanding Delivery Duty Unpaid (DDU)

    Delivery duty unpaid (DDU) is a legal and international shipping term.
  10. Investing

    Are Shipping Stocks Due For A Rally?

    Several bullish catalysts are lining up in favor of shipping companies. Their current cheapness may not last for long, though, so the time to buy is now.
Hot Definitions
  1. Majority Shareholder

    A person or entity that owns more than 50% of a company's outstanding shares. The majority shareholder is often the founder ...
  2. Competitive Advantage

    An advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or retain more customers ...
  3. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities ...
  4. Wash-Sale Rule

    An Internal Revenue Service (IRS) rule that prohibits a taxpayer from claiming a loss on the sale or trade of a security ...
  5. Porter Diamond

    A model that attempts to explain the competitive advantage some nations or groups have due to certain factors available to ...
  6. Oligopoly

    A market structure in which a small number of firms has the large majority of market share. An oligopoly is similar to a ...
Trading Center