Freight terms are part of the sales agreement; they describe when the legal title of the goods passes from the seller to the buyer. In other words, when does the purchaser (merchandiser) become the owner of the goods? These terms also indicate which party is responsible for paying transportation costs. FOB is a term used in the shipping industry that means free on board or freight on board. Ownership changes (from seller to buyer) become important when a company must identify its assets at the end of an accounting period. Does the company own something that might not be on its premises?
The two types of freight terms are described below:
