Here’s the scenario: you issue a purchase order for $50,000 worth of product from a hardware manufacturer. The product is to be shipped to your location via Fedex. Fedex loses the shipment. The shipper did not insure the shipment. Who’s responsible for coughing up $50K? Answer:
you are. Shocking, I know. Why?
I wanted to share this brief experience my business partner and I had regarding receiving such a product shipment. Rules for commerce are typically governed by the Uniform Commercial Code. The purchase order in this case specified the shipment was FOB Origin (or FOB Carrier). This is where the rules come into play which govern which party has responsibility. Basically, if you are shipped something FOB (Free On Board) and it is anything other than FOB Destination (i.e., your location), you are responsible for the shipment. If you want the shipment insured, the onus is on you to require the shipper to insure it accordingly on the purchase agreement.
This is one of those instances where I had to learn this from experience. We mistakenly assumed the shipper would insure such expensive equipment while in transit. Don’t ever make this assumption. Luckily, in our case, the manufacturer “did the right thing” and replaced the shipment for us. From now on, we’ll be ordering everything either FOB Destination or requiring the shipper to insure the freight (which you can have added to your invoice). Please make sure you do the same!
