The basics of FOB terms
In government contracting, you’ll always see terms like FOB Origin or FOB Destination in your contract. These small details make a big difference in who’s responsible for costs and tracking.
Here’s the breakdown:
- FOB Origin: The government takes responsibility once the item leaves your facility. They pay the shipping costs, and you can print prepaid labels inside VSM (Vendor Shipment Module).
- FOB Destination: You remain responsible for the shipment until it arrives at its final destination. That means you pay the shipping costs and handle tracking all the way through delivery.
How FOB Origin shipments work
When your contract is FOB Origin:
- Pack and label your items according to MIL-STD requirements.
- Go into VSM to print out the prepaid labels (FedEx, UPS, etc.).
- Place the label on your exterior container.
- Once it leaves your facility, the government assumes responsibility for cost and tracking.
In short, the DLA covers freight charges under FOB Origin contracts.
How FOB Destination shipments work
When your contract is FOB Destination, things look different:
- You are responsible for the shipment all the way to its final destination.
- You still go into VSM to generate military shipping labels and container IDs, just like you would for FOB Origin.
- However, VSM will not give you a prepaid parcel label.
- Instead, you’ll need to purchase your own shipping label (FedEx, UPS, or another carrier) and pay out of pocket.
Step-by-step example
Let’s say you have three contract line item numbers (CLINs), each going to a different location:
- Pack each unit container, intermediate container, and exterior container.
- Place your RFID label on the bottom left corner of each box.
- Use VSM to generate the military label and container ID for each CLIN.
- Military label → goes on the top right corner of the exterior container.
- Container ID + certificates → placed inside the box.
- Purchase shipping through FedEx or UPS.
- Pay for the shipment and track it until it reaches the end destination.
Quick comparison: FOB Origin vs FOB Destination
| Feature | FOB Origin | FOB Destination |
|---|---|---|
| Who pays shipping? | Government | Contractor |
| When responsibility transfers | When shipment leaves your facility | When shipment reaches its final destination |
| Labels in VSM | Prepaid FedEx/UPS | Military label only (you buy carrier label) |
| Tracking responsibility | Government | Contractor |
Key takeaway
FOB terms define who pays and who’s responsible:
- FOB Origin → Government pays.
- FOB Destination → You pay.
Understanding the difference saves you from costly mistakes and keeps your shipments compliant with DLA requirements.
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