Fob (Free on Board) Contract

FOB (Free on Board) Contract Terms

The terms of the contract specifying "Free on Board" mean that the seller (Organic Farms) pays for transportation of the goods to the place of shipment, plus loading costs at the original point of departure. The buyer (Grocery, Inc.) pays for freight, insurance, unloading costs and transportation afterwards, once the goods reach the place of destination. This is why Organic Farms paid for the costs of independent trucking company, which used the faulty transportation equipment that broke down and resulted in the delay and the spoilage of the peaches that were being shipped to Grocery, Inc.'s place of business. ("F.O.B.," 2006, Wikipedia)

According to the terms of F.O.B (Free on Board), which is an International Term of Sale, the seller (Organic Farms) fulfills his or her obligation to deliver when the goods have passed to the area where they are supposed to arrive, in this case, to the premises of Grocery, Inc. ("F.O.B., 2006, Glossary of Shipping Terms) This means that the buyer has to bear all costs and risks to loss of or damage to the goods from that point. From the point of the peaches' arrival, Grocery, Inc. is responsible for the damage that might ensue. If the peaches spoiled the day after arriving, for example, Grocery, Inc. would be responsibile, not Organic Farms. Although there was a three-day delay, according to the stated scenario, there was not a specific, pre-designated day that the produce was supposed to arrive at the gates of Grocery, Inc.