Imagine this scenario: You’ve imported goods from overseas, and your supplier informs you that the shipment is under FOB terms with freight collect. Meanwhile, you’ve also opted for collect-on-delivery (COD) for a domestic online purchase. While both arrangements involve the receiver paying for shipping, their underlying implications are vastly different. Misunderstanding FOB terms could lead to unnecessary costs and risks in international trade. This article examines the fundamental distinctions between FOB "freight collect" and domestic COD to help businesses avoid common pitfalls.
1. Conceptual Differences: FOB vs. Domestic COD
To grasp their differences, it’s essential to first define each term and its primary function.
FOB: The "Rules of the Game" in International Trade
FOB (Free On Board) is a trade term established by the International Chamber of Commerce’s Incoterms® 2020 . It is not merely a freight payment method but a comprehensive framework for allocating responsibilities, risks, and costs between buyers and sellers in cross-border transactions.
Under FOB terms, the seller must deliver goods onto the buyer’s designated vessel at the specified port of shipment. Once the goods pass the ship’s rail (or are loaded), risk transfers from seller to buyer. This means all subsequent expenses—including ocean freight, insurance, destination port charges, and import clearance fees—are borne by the buyer (i.e., "freight collect").
Domestic COD: A Simple Freight Payment Option
Unlike FOB, domestic COD is strictly a payment arrangement where the sender ships goods without prepaying delivery charges, leaving the recipient to pay upon receipt. This system solely determines "who pays for shipping" and does not govern liability or risk allocation for the goods themselves.
2. Comparative Analysis: FOB Freight Collect vs. Domestic COD
The table below highlights key contrasts across multiple dimensions:
| Dimension | FOB "Freight Collect" (International) | Domestic COD |
|---|---|---|
| Scope | Governs entire logistics chain from export to import | Limited to final-mile delivery payment |
| Risk Transfer | Occurs at ship’s rail in origin port | No risk transfer mechanism |
| Cost Coverage | Includes freight, insurance, customs, and port fees | Only basic delivery charges |
| Legal Basis | Incoterms® 2020 (internationally standardized) | Carrier-specific terms (no universal rules) |
| Primary Purpose | Allocate trade responsibilities | Convenient payment collection |
3. Practical Implications for Businesses
Understanding these differences is critical because:
- FOB buyers assume liability for cargo damage during transit and must arrange/maintain insurance coverage.
- COD recipients face no additional obligations beyond paying the courier fee upon delivery.
- Under FOB, buyers may encounter unexpected charges like demurrage or detention fees at destination ports.
- Domestic COD transactions typically involve no hidden costs beyond the advertised shipping rate.
Businesses engaged in international trade should carefully review Incoterms® selections with legal and logistics experts to avoid assuming unintended liabilities.