FOB Meaning vs COD vs Freight Collect in LTL Freight Shipping
Very Confusing… But people often request one or more of these services when shipping, thinking that the terminology is being accurately used. However, when not accurately used, the outcome has a potential to be disastrous!
First, We’ll talk about FOB. The meaning, or acronym, for F.O.B. stands for “Freight on Board” or “Free on Board” and really has nothing to do with Freight Charges (Although is usually paired with Freight Payment instructions such as “Freight Collect”) FOB basically refers to the ownership of the cargo while in transit. For example; FOB Origin written on the bill of lading means the person who bought the cargo being shipped owns it once the truck is loaded at the origin. So if anything were to happen to the freight during transit, it would be the BUYER’S (who is usually the “consignee”, or receiver, of the freight) loss or issue to deal with. Whereas, if a bill of lading is marked FOB Destination, then the SELLER of the cargo would retain ownership during transit until the freight was delivered and signed for by the consignee, making it their loss should anything happen during transit. The meaning of FOB is pretty much limited to this definition. So unless you want the ownership of the freight during transit specified, You wouldn’t mark or request FOB to be marked on a Bill of Lading.
Even more often wrongly requested is to “Ship COD” when the shipper really means “freight Collect”. COD means “Collect On Delivery” or “Cash On Delivery” and usually refers to paying for the goods being shipped, not the actual freight charges. (Although freight cost could be included in the total cost of the amount collected). It is a bill of lading instruction for the delivering driver to collect payment for the product being shipped that will be, in turn, sent back to the seller. For example; if you sell a pallet of coffee to someone for $1000 plus $200 for shipping (assuming you were paying for the shipping), you would write a C.O.D. instruction on the bill of lading with a $1200 amount to be collected from the consignee upon delivery and sent back to you for payment of the goods sold. Type of funds collected such as; certified funds only, cash, or company check can also be specified. This would be common when a buyer doesn’t want to pay for goods in advance and the shipper doesn’t want to deliver the product(s) until it is paid for, almost like an escrow. However, carriers (especially LTL carriers) now days do not like the responsibility of collecting payment for the goods shipped and sending it to the seller. So they usually charge a very high fee for CODs, which makes this service really not worth using anymore.
“Freight Collect” would be the proper terminology when it is the consignee’s responsibility to pay for ONLY the freight charges. And even though the word “collect” is in the term, Freight Collect doesn’t necessarily mean that the driver will physically collect money from the consignee. It just means that the consignee is responsible to pay for the shipping on whatever payment terms are negotiated between them and the carrier.
If a shipper (the party where the cargo is physically being shipped from) is paying the freight charges directly to the carrier, the bill of lading should be marked “Freight Prepaid”. Which also doesn’t necessarily mean that the freight is literally prepaid, but rather, that the shipper is the responsible party for the freight payment, again, on whatever payment terms they have negotiated with the carrier. Finally, a bill of lading marked “Third Party Billing” would indicate the instruction that neither the party who is physically shipping the cargo nor receiving it is responsible for paying freight charges to the carrier. Two examples of this would be if you sold a pallet of coffee and shipped it directly to your customer from the coffee distributor but were responsible for paying the freight, or if you used a freight broke who had pre-negotiated terms with the carrier. In either case the responsible billing party would have to be written on the bill of lading in addition to it being marked “3rd Party Billing”.
I hope this article helped you understand the differences between these terms and am always available to answer any freight questions or quote on your LTL Shipping. We are extremely competitive on economy transit shipments throughout the U.S. and offer The best LTL online tools for small as well as volume shippers!