What does FOB mean in shipping and in produce?

FOB in produce means free on board at the shipping point, the price of the onions once they are graded, packed and loaded on the truck at the origin. The buyer owns them from the shed door and pays the freight from there. When a shipper quotes an onion price and a broker repeats it, FOB is almost always what they mean, because it is the clean origin price with no trucking baked in.

Free on board, at the origin

Break the term down. "Free on board" is old freight language for the point where the seller's job ends and the goods are loaded and handed off. In produce that point is the shipping point, the packing shed or district. An FOB onion price covers the onions, the pack and loading them on the truck. It does not cover getting them anywhere. The moment the pallets are on the trailer, they belong to the buyer, and every mile after that is on the buyer's freight bill.

What FOB means in shipping

In shipping, FOB is a delivery term, and the place written after it carries the meaning: it marks where the seller's costs and risk stop and the buyer's start. In international trade the rules are the ICC's Incoterms, where FOB is for sea and inland waterway freight. The seller clears the goods for export and loads them on board the vessel at the named port of shipment, and once they are on board the risk of loss or damage passes to the buyer, who also pays the ocean freight (ICC Academy). That is what a Dutch exporter means by FOB Rotterdam, and Dutch onion FOB prices to Dakar walks through that lane. For goods handed over at a container terminal before they are loaded, the ICC points traders to FCA, free carrier, instead.

US produce moves by truck, and the trade's own rulebook spells FOB out. The regulations under the Perishable Agricultural Commodities Act define f.o.b. as produce placed free on board the boat, car or other land transport at the shipping point, in suitable shipping condition, with the buyer assuming all risk of damage and delay in transit not caused by the seller, however the shipment is billed (7 CFR 46.43). Suitable shipping condition means a load handled normally should reach the agreed destination without abnormal deterioration, and the buyer keeps the right to inspect it there before paying.

What FOB means in business

In business and accounting, an FOB term settles two questions a sales contract would otherwise leave open: when the buyer owns the goods, and who carries the loss if they are damaged on the way. Under the Uniform Commercial Code, which governs sales of goods in the US, FOB the place of shipment means the seller's expense and risk end once the goods are in the carrier's possession, and FOB the place of destination means the seller pays and carries the risk until the goods are tendered there (UCC 2-319). So a truckload invoiced FOB shipping point is the buyer's while it is on the road, on the buyer's books and the buyer's to claim for if it arrives damaged. Invoiced FOB destination, it stays the seller's until it arrives.

FOB versus delivered

A delivered price is FOB plus the freight to the buyer's dock. That is the whole difference, and it matters because freight is not a constant. The same 50-lb sack of jumbo yellows carries a different delivered price into Dallas than into Atlanta, because the lanes are different lengths and the truck market is different on each. Two buyers can pay the identical FOB and land the onions at different costs. When someone quotes an onion price with no location attached, ask whether it is FOB or delivered, because the two answer different questions. The PACA rules define the other side the same way: in a delivered sale the seller puts the produce on board at the buyer's market, free of all transportation charges, and carries the risk of loss in transit.

Why the trade prices in FOB

FOB is the comparable number. Strip out freight and you can line up Idaho-Eastern Oregon against Georgia against south Texas on the same basis, the price of the onions themselves at the origin. Delivered prices tangle that comparison up with lane costs that have nothing to do with the onion. That is why USDA shipping-point reports and this site lead with FOB: it isolates the market for the crop from the market for a truck. Freight is real money and it decides plenty of deals, but it is a separate variable, handled separately.

Worked example: one FOB, two destinations

Take the Idaho-Eastern Oregon table above. The FOB range on it is the price at the Treasure Valley shed, before a single mile of freight. To turn that into a delivered price, a buyer adds the truck. Say freight runs one figure to Dallas and a higher figure to Atlanta, because Atlanta is the longer haul. Same onions, same FOB off the same table, two different delivered costs. The FOB is the fixed point both buyers start from. For how the freight leg actually moves the delivered number, see how freight changes the delivered price.

In numbers: the latest Idaho-Eastern Oregon report quotes mostly $13.00-14.00 per 50 lb sack for yellow colossal. Load 800 of those sacks, 40,000 pounds, and the onions cost $10,400-11,200 at the shed door. That figure is the same for the Dallas buyer and the Atlanta buyer. Every dollar of trucking goes on top of it.

Know Your Onions reports FOB shipping-point prices as USDA publishes them. Freight figures used in examples are illustrative, because this site tracks the FOB market, not truck rates.