Who pays for the freight bill following a rejection to an FOB seller?
The Key Point
The party that hired the carrier is responsible for paying the freight.
The FOB buyer pays the carrier and claims damages against the seller.
Q: We are a receiver located in Florida. I purchased a blackberry load FOB from a shipper in Texas. The transportation temperatures were perfect, but the product was in bad shape, so we called for a USDA inspection. The inspection showed the product had 29% serious damage and clearly did not make “good arrival.” We rejected the load to the shipper. Later, I received the freight invoice from the carrier, and I forwarded the bill to the shipper. The shipper is telling me they will not pay the invoice and refuses to speak to the carrier to get this bill settled. Please advise.
A: Although FOB shippers will sometimes pay freight bills following a rejection, the party that actually hired the carrier is responsible for paying the freight bill. In the case you describe, your firm hired the carrier and it is your firm the carrier extended credit to; consequently, it is ultimately your firm’s responsibility to pay the carrier.
Your recourse is to claim damages against your shipper, who appears to have breached the sales contract by failing to ship product in suitable shipping condition (i.e., failing to ship product that would make “good arrival”).
The amount of your claim against the shipper will very likely equal or exceed the value of the freight. We say “very likely” because, technically, your damages are based on the destination market value of the product on the date the product arrived.
Typically, this value would exceed your delivered cost, but if the destination market value of the commodity were to dip below the delivered cost while the carrier was en route, your damages could fail to cover the full amount of your freight bill.
Generally speaking, however, your damages will exceed the amount of the freight due because both freight and profit are incorporated into the destination market value reported by the USDA’s Market News Service.
As a practical matter, many times buyers are content to simply claim the delivered cost of the product (i.e., bill the seller the amount of the freight) plus the cost of the government inspection following a rejection.