Shipping Goods – Risk of Loss, Cost of Shipping, etc.

Shipping terms are vital for anyone in the business of producing goods. If you are a buyer or a seller, products need to arrive at a certain point, they need to arrive on time and they need to be intact and in good quality. All of these details cost money and create risk. In Pennsylvania and several other states, the Uniform Commercial Code, has provided sellers, purchasers and merchants with a shorthand for specifying these terms in a contract.

FOB (free on board) place of shipment means that the seller must deliver the goods to the carrier and bear the expense and risk of making that delivery to the carrier. After that, the risk and cost, as between the seller and buyer, shifts to the buyer. So for example, if a sales contract provides for a shipment of teacups “FOB Terminal “X” CSX Northwest Ohio Intermodal Terminal”. The Seller has to get the cups to the loading dock unbroken on the contracted for date. (Note that if the directions were “FOB” Car 17, Terminal “X” CSX Northwest Ohio Intermodal Terminal”, the cup maker would also have to load the cups at its expense.)

FOB place of destination means that the seller must deliver the goods to the destination of the buyer and bear the expense and risk of making the delivery to the buyer’s destination. Obviously, everything else being equal, this is better for the buyer than an FOB place of shipment instruction. However, things being what they are, it would also probably mean that the buyer pays more in total to the seller and the buyer gives up some control over the shipment (by way of not being able to choose the carrier.)

There are other designations that follow this form. For an example that we don’t see much, if products are going by ship, the instructions are no longer “FOB” but are now “FAS” (for “free alongside ship”). As yet another variation, the parties can specify a CIF term, in which the buyer agrees to pick up the “carriage, insurance and freight” expenses for a particular shipment to a named destination.

Note that all of the above terms do not relate to the liability of the carrier (the trucking, train or shipping company). The liability of the carrier depends on the contract with the “shipper” and certain state and federal common carrier rules, like the often used “Carmack Amendment” which generally puts the onus on interstate trucking companies to show that they are not liable for damage to goods that were delivered in good form to the trucking company.

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