Shipping
A.
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Introduction
Purchasing is responsible for providing complete shipping instructions to vendors. The
instructions must inform the vendor fully of the City's needs regarding the shipment.
Purchasing either will specifically notify the vendor how a certain shipping issue must be
handled (e.g., the purchase order number must appear on the outside of all containers, air
freight or overnight service, etc.), or will inform the vendor of the issues involved and
make the vendor responsible for shipping appropriately in light of those issues (e.g., the
shipment must be kept refrigerated, and so the vendor must arrange proper shipping).
B.
C.
Standard Shipping Instructions
1.
The purchase order number must appear on the outside of all packages and
containers.
2.
The packing list must be affixed to the outside of packages and containers.
F.O.B. Point and Freight Charges
1.
Chart
The chart at the top of the next page summarizes the F.O.B. and freight charge The
first line, “F.O.B. destination, freight prepaid and allowed,” is the City’s standard
language.
Office of Contract Administration
Purchasing Procedures Manual
Effective: 5-6-09
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Shipping
Option
F.O.B. destination,
freight prepaid and
allowed
F.O.B. destination,
freight included
F.O.B. destination,
freight collect and
allowed
F.O.B. destination,
freight collect
F.O.B. Origin, Freight
Included (also termed
Freight Allowed
Destination, or Full
Freight Allowed)
F.O.B. Origin, Freight
prepaid and charged
back
F.O.B. origin, freight
collect and allowed
F.O.B. Origin, freight
collect
2.
Who ultimately pays
Who pays the carrier
the freight
Supplier
City
Who owns the goods,
bears risk of loss,
and files damages
claims
Supplier
Supplier
Supplier
Supplier
City
Supplier
Supplier
City
City
Supplier
Supplier
Supplier
City
Supplier
City
City
City
Supplier
City
City
City
City
F.O.B. (Free on Board)
a.
Definition
F.O.B. stands for "Free on Board." The F.O.B. point is the point at which
ownership of the goods and risk of loss pass from the seller to the buyer. Along
with ownership and risk goes the responsibility for filing claims with the carrier
for any damage in transit. The two most important F.O.B. options are "F.O.B.
Destination" and "F.O.B. Origin." Less commonly used is "F.O.B. Plant."
b.
F.O.B. Destination
This is the City’s preference in most cases. With F.O.B. Destination, the City
does not own the goods until they arrive. The City would not have to pay the
vendor for goods lost or damaged in transit, because the City did not own them
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Purchasing Procedures Manual
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Shipping
when the damage occurred. F.O.B. Destination also usually means that the
vendor pays all shipping costs. Depending on the vendor's bid, the vendor may
absorb the costs by stating that the bid price included shipping, or could prepay
them and add them to the invoice. This implication can be overridden by
specific language relating to those costs, and the Purchase Order's "freight
prepaid and allowed" authorizes the vendor to pay the shipping costs and add
them to its invoice. For information on freight charge provisions, see paragraph
2, "Freight Charges," below.
c.
F.O.B. Origin
Purchasing avoids F.O.B. Origin if possible. F.O.B. Origin makes the City the
owner of the goods from the time they leave the vendor's place of business, or
when they leave a distribution point near the vendor if one was used. If a
vendor delivers the goods to its local freight terminal, the goods become the
City's when they leave the terminal. F.O.B. Origin also implies that the vendor
pays shipping to the terminal and the City pays from the terminal to the City.
d.
F.O.B. Plant
F.O.B. Plant shifts the title, risk, and responsibility to the City when the goods
leave the vendor's place of business to go to a freight terminal and then on to the
City. F.O.B. Plant is a term encountered infrequently.
3.
Freight Charges
a.
Freight Prepaid and Allowed; or Freight Included
The Purchase Order states "freight prepaid and allowed," which means the
vendor pays the shipper and adds the shipping charges to the vendor's invoice.
If the vendor will include shipping charges in the unit price of the goods, this is
"freight included" or "freight prepaid."
b.
Freight Prepaid and Added; or Freight Prepaid and Charged Back
This means essentially the same as freight prepaid and allowed, but is the
terminology used when the order is F.O.B. origin rather than F.O.B. destination.
c.
Freight Collect
"Freight collect" means the City will pay the carrier directly for freight charges.
The carrier later invoices the City by sending the invoice to Purchasing.
Freight collect refers only to freight charges, and not to the shipment's line item
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Purchasing Procedures Manual
Shipping
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prices. Compare "C.O.D" in §f below. To pay a freight bill, the requesting
department must submit a Direct Voucher (DV) to Purchasing. The carrier's
invoice cannot be processed as part of the purchase order because there is a
second payee.
d.
Driver Collect
Some carriers will stamp "Driver Collect" on a freight bill, and this instructs the
driver to collect the freight charges from the City when delivering the shipment.
The City has no mechanism for paying carriers at time of delivery. The
requesting department informs the driver that the City will process the freight
bill normally and the carrier will be paid by the Controller later.
e.
Freight Collect and Allowed
Under "freight collect and allowed," the City would pay the carrier upon
delivery, but deduct the amount paid from the vendor's invoice. Ultimately, the
vendor bears freight costs, but the City still has the significant problem of
having to pay the carrier on the spot. Purchasing does not agree to this variation
on freight collect.
f.
C.O.D. (Cash on Delivery)
If a shipment were C.O.D., the City would be obligated to pay the vendor's
invoice when the carrier delivered the goods. C.O.D. shipments violate the City
procedures regarding payment only after departmental receipt and acceptance,
and only after department matches the invoice to the purchase order.
Purchasing never agrees to C.O.D. terms, and the requesting department refuses
any C.O.D. shipment.
C.
Methods of Shipping
1.
General
It is the vendor's responsibility to select an appropriate method of shipping an item
from the supplier's location to the City's final delivery point. Purchasing usually gives
the vendor no instructions on how to ship. This section reviews available shipping
methods and notes when they would be important for a particular delivery. If
Purchasing gives the vendor any specific instructions to the vendor as described in the
following paragraphs, the instructions would be made first by telephone and then
included on the purchase order.
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Purchasing Procedures Manual
Shipping
Effective: 5-6-09
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For unusual shipping methods, particularly water and rail, the purchaser should work
closely with the department to make sure responsibilities, shipping notification,
delivery instructions and transfer of title are clearly stated in the PO.
2.
Air
Purchasing specifies air freight if the item is needed urgently, but asks the vendor for
an estimate of the freight charges. If the charges are unexpectedly high, Purchasing
calls the requesting department to ascertain whether air freight is still desired.
3.
Surface (truck)
Unless Purchasing requests otherwise, vendors most often ship by truck, usually via
UPS.
4.
Rail
Rail shipments can be cheaper but slower than truck shipments. Some items too
heavy for standard long-distance trucks must go by rail. As needed, the buyer
consults with the vendor on the advisability of shipping by rail. If a shipment is so
heavy that it will be shipped by rail, Purchasing asks the vendor to arrange with a
local drayage company for delivery from the rail terminal in San Francisco to the final
delivery point. The vendor pays the drayage company and adds those costs to the
vendor's invoice to the City.
5.
U.S Postal Service
Vendors rarely ship packages via the Postal Service, preferring to use common
carriers instead. Tracing lost shipments can take longer if the shipment was mailed,
unless it was sent Certified Mail.
6.
Water
Unusually heavy or bulky items could be shipped by water rather than by rail.
Arrangements with a drayage company would be required. If the purchase is funded
by the federal government (UMTA or its successor, the RTA), the purchase order
attachment requires water shipments to be made in U.S. flag vessels.
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Purchasing Procedures Manual
Shipping
D.
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Specialized Shipping Instructions
1.
General
The vendor is generally responsible for shipping items in an appropriate manner.
This section reviews unusual situations where Purchasing gives the vendor specific
instructions, or the vendor does something out of the ordinary, or both. If Purchasing
gives the vendor any specific instructions as described in the following paragraphs,
the instructions would be made first by telephone or e-mail and then included in the
Purchase Order.
In any unusual situation, the purchaser works with the user department to ensure that
all important issues are clearly communicated among Purchasing, the department, the
vendor and if necessary to freight company.
2.
Inside delivery
The City’s preference is almost always for delivery to be made inside the building.
Unless otherwise directed, a common carrier will deliver a small item (that can be
hand-carried) to a delivery point anywhere in a building, but will deliver a large or
heavy item only to the loading dock or sidewalk. If Purchasing knows that the item is
bulky, for example, and that the delivery point is on the third floor of a building with
no elevator, Purchasing indicates on the purchase order: "Final delivery to Room
323; building has no elevator."
3.
Weight
Unusually heavy shipments may require special trucks, or may have to go by rail
where appropriate. If a common carrier will not deliver the item to the final delivery
point, Purchasing instructs the vendor to make appropriate arrangements with a local
drayage company which will in turn deliver to the department. Such local companies
have special loading equipment, such as hoists, lifts, etc., which the City does not
possess, and use the specialized equipment to load the shipment onto the local
companies' own trucks, and in turn deliver to the department. Purchasing asks the
vendor to pay the drayage company and to include those costs on the vendor's invoice
to the City.
When placing the order with the vendor, Purchasing also informs the local company
of the purchase order number for the transaction, and instructs the local company to
submit its invoice, which is a freight bill, to the requesting department.
Office of Contract Administration
Purchasing Procedures Manual
Shipping
4.
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Hazard
Items such as chemicals may be hazardous and must be shipped safely. The vendor is
responsible for arranging for appropriate shipping which conforms to all
governmental regulations. A Material Safety Data Sheet (MSDS) is required for all
deliveries, and a statement to that effect is included in all purchase orders.
E.
Insurance
Insurance is available from several sources to cover possible damage to goods during
shipping. Many carriers include insurance automatically in their rates for the first $100 of a
shipment's value. For higher insurance coverage, the vendor must notify the carrier.
Usually carriers do not offer insurance for shipments over $500, and require that the vendor
present evidence that the shipment is insured.
Office of Contract Administration
Purchasing Procedures Manual