Definitions
The term "Free on Board" F.O.B. is commonly used when shipping goods to indicate who pays loading and transportation costs, and/or the point at which the responsibility of the goods transfers from shipper to buyer.
F.O.B. Destination is the preferred shipping/freight method since it provides the most protection to the University. It should be negotiated into all purchases whenever possible. F.O.B. Destination means that legal ownership of the good transfers when it reaches the department. Therefore, the seller pays all shipping/freight costs and assumes risk of damage for the goods during transit.
F.O.B. Origin or Shipping Point means that the department usually pays all shipping/freight costs and legal ownership transfers to the department when the goods leave the vendor's warehouse. The department assumes risk of damage during transit. If a vendor requires F.O.B. Origin or Shipping Point, the department should arrange for appropriate insurance coverage for the purchased goods. The University Office of Risk Management can provide transit insurance when necessary.
A Quick Look at Shipping/Freight Terms
| FOB Term | Who Pays the Cost | Who Bears the Cost | Who Owns Goods In-Transit | Who Assumes Transit Risk |
|---|---|---|---|---|
| FOB Destination, freight prepaid | Seller | Seller | Seller | Seller |
| FOB Destination, freight prepaid and Add (costs to invoice) | Seller adds costs to the invoice | University | Seller | Seller |
| FOB Shipping Point* *Please Contact Purchasing | Seller or University | Seller or University | University | University |
Submitting Requisitions:
The department should require any shipping/freight terms to be reflected on the quote received from the vendor. The quote becomes part of the purchase order that helps clarify the agreement between the department and the vendor. When the department will pay for shipping/freight costs (see procedures below) the department needs to add one line item to the requisition with the estimated or actual shipping/freight costs, and may state a maximum shipping/freight amount in the shipping/freight description line, for example: The department purchases a piece of equipment for $2,000 and the seller states estimated shipping/freight is $50. The department may add language to the shipping/freight line item with a "not to exceed" amount to allow Payables to pay for shipping/freight up to that amount "Shipping/freight not to exceed $75".
For a majority of purchases the seller should be able to provide an actual cost for shipping/freight. However, there are times where estimated shipping/freight costs may be appropriate, for example, if the purchase requires separate shipments as goods become available. If the department believes the shipping/freight costs are excessive, the department should contact purchasing for assistance.
At a Glance:
Banner Requisitions: The buyer assigns the quote's F.O.B. Term on the purchase order. If the quote does not establish the F.O.B. term the buyer will assign the appropriate F.O.B. Term on the purchase order. The department adds one line for shipping/freight that includes all estimated or actual shipping/freight costs for the purchase order.
IBuy Requisitions: The iBuy purchase order does not contain an F.O.B. Term. If the quote does not establish the F.O.B. term no shipping/freight term will be added to the Purchase Order. The department adds one line for shipping/freight that includes all estimated or actual shipping/freight costs for the purchase order.
Click here for a downloadable Urbana Campus Shipping Guide and Procedures.
Urbana Campus Shipping Guide and Procedures
| Terms of Sale | Responsibility for Cost and Transit Ownership | Procedures |
|---|---|---|
| Destination, freight prepaid | Seller - Pays Freight Cost Seller - Bears freight Cost Seller - Owns goods in transit Seller - Files claims | Department Procedures:
Purchasing Procedures:
University Payables Procedures:
If shipping/freight is added for payment: A change order is required to add the shipping/freight line to the purchase order. |
| Destination - Prepaid and Add | Seller - Pays freight costs and adds costs to invoice Buyer - Bears freight costs | Department Procedures:
Purchasing Procedures:
University Payables Procedures:
No Shipping/freight Line added - shipping/freight added on invoice:
|
| Shipping Point (All types) | Specific terms to be discussed with Purchasing. UPS Shipping Instructions | Department Procedures:
Purchasing Procedures:
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UPS Accounts:
For units that use a departmental UPS account, a shipping line item is not needed as UPS charges the department's UPS account directly.
Customs Broker:
The importing and exporting of goods are subject to the rules and regulations of U.S. Customs and may require special forms to be completed for importing or exporting. Departments needing to receive or ship goods coming from outside the United States should contact the University's contracted vendor for customs clearance. The University's contracted vendor has been provided with power of attorney to help streamline these deliveries.
University of Illinois Customs Broker contact:
Seko Logistics Chicago
Contact Name: Bill Krutz
Ph# 847-238-1900
Email: [email protected]
Last Updated: May 4, 2015
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As an expert in logistics and shipping procedures, I bring a wealth of knowledge and experience to the table. My understanding of shipping terms, such as Free on Board (F.O.B.), goes beyond mere definitions, encompassing the intricacies of responsibility allocation, cost implications, and risk management in the shipping process.
Now, let's delve into the concepts mentioned in the provided article:
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Free on Board (F.O.B.):
- Definition: F.O.B. is a shipping term indicating who pays loading and transportation costs and at what point the responsibility for the goods transfers from the shipper to the buyer.
- F.O.B. Destination: Legal ownership transfers to the buyer when the goods reach the destination. The seller covers shipping costs and assumes the risk of damage during transit.
- F.O.B. Origin or Shipping Point: The buyer usually pays shipping costs, and ownership transfers when the goods leave the vendor's warehouse. The buyer assumes the risk of damage during transit.
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Shipping/Freight Terms:
- FOB Term | Who Pays the Cost | Who Bears the Cost | Who Owns Goods In-Transit | Who Assumes Transit Risk
- F.O.B. Destination, freight prepaid | Seller | Seller | Seller | Seller
- F.O.B. Destination, freight prepaid and Add (costs to invoice) | Seller adds costs to the invoice | University | Seller | Seller
- F.O.B. Shipping Point | Seller or University | Seller or University | University | University
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Requisitions:
- The department should ensure shipping/freight terms are reflected in the vendor's quote, and for department-paid shipping, add a line item to the requisition with estimated or actual shipping costs.
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Banner and iBuy Requisitions:
- Buyers assign the F.O.B. term on the purchase order. If not in the quote, the buyer assigns the appropriate term. iBuy purchase orders do not contain an F.O.B. term.
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Procedures for Shipping/Freight Terms:
- The department, purchasing, and university payables have specific procedures regarding communication, approval, and resolution for shipping/freight terms.
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Destination - Prepaid and Add:
- The department obtains a quote, adds a shipping/freight line item, and may specify a "not to exceed" amount for payment.
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Shipping Point:
- Specific terms discussed with purchasing. The department consults with the buyer on shipping methods, and UPS instructions are provided for units using a departmental UPS account.
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Customs Broker:
- For international shipments, the University has a contracted customs broker, Seko Logistics Chicago, to assist with customs clearance.
This comprehensive overview should provide clarity on the concepts and procedures related to shipping and freight terms outlined in the article.
