Transportation Operations LINCS Practice Exam

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What is the significance of the term 'Free on Board' (FOB)?

Goods must be free of shipping costs
A designation for when liability transfers from seller to buyer
A regulatory requirement for all shipments
A classification used for non-perishable goods

The correct answer is: A designation for when liability transfers from seller to buyer

The term 'Free on Board' (FOB) is significant because it fundamentally establishes the moment at which the responsibility and liability for goods transfer from the seller to the buyer. In this context, 'FOB' indicates that the seller is responsible for costs and risk up until a specified point, usually the shipping point or destination point. When goods are designated as 'FOB Shipping Point,' it means that the buyer assumes responsibility as soon as the goods are shipped. Conversely, under 'FOB Destination,' the seller retains responsibility until the goods reach the buyer's location. This distinction is crucial in commercial transactions as it determines who bears the risk of loss or damage during transit, impacting how businesses manage their shipping and financial strategies. Understanding FOB terms helps buyers and sellers clarify their obligations and manage potential disputes over liability and costs associated with the shipment.