Free on Board (FOB)
Free on Board (FOB) is a shipping trade term defining the point at which ownership and risk of goods transfers from seller to buyer - typically when goods are loaded onto a vessel at the named port of shipment.
Free on Board (FOB) is one of the 11 Incoterms defined by the International Chamber of Commerce (ICC) in the Incoterms 2020 rules. It applies to sea and inland waterway transport. Under FOB terms, the seller delivers goods to a named port of shipment and loads them onto a vessel nominated by the buyer. Once the goods are on board, all risk and cost pass to the buyer. The buyer then arranges and pays for ocean freight, marine insurance, import duties, and onward delivery to their warehouse.
FOB is the most common Incoterm used by promotional merchandise distributors and other businesses sourcing products from factories in China, Bangladesh, India, and other manufacturing countries. When a supplier quotes "FOB Shanghai $3.20 per unit," the price includes the product, export packaging, inland transport to the port, export clearance, and loading onto the vessel. Everything after the ship sails is the buyer's responsibility.
What FOB Means for Your Landed Cost
Understanding FOB pricing is essential for calculating accurate landed costs and protecting your margin. A FOB price does not include ocean freight, destination port charges, customs clearance, import duty, VAT, or inland delivery to your warehouse. Depending on the product category, origin port, and freight market conditions at the time of shipment, the gap between the FOB price and your actual landed cost can be substantial.
When comparing supplier quotes given in FOB terms, always request a freight estimate from your freight forwarder before building your customer quote. A lower FOB price from a factory in a less-served port may produce a higher landed cost than a slightly higher FOB price from a major hub like Shanghai or Guangzhou, where freight rates and routing options are more competitive.
Landed Cost Calculation
Ask your freight forwarder for an all-in quote covering ocean freight, destination charges, and customs clearance. Add import duty at the applicable rate for your product's commodity code. The sum of FOB price plus freight and duty is your true landed cost - which is the number you should use when calculating your selling price and margin.
FOB vs Other Common Incoterms
Businesses new to importing sometimes receive quotes in EXW (Ex Works) or CIF (Cost, Insurance, and Freight) terms rather than FOB. EXW places more responsibility on the buyer - the seller hands goods over at their factory gate and the buyer arranges everything from there, including export clearance. CIF includes freight and insurance to the destination port but leaves the buyer less control over carrier choice and freight costs.
FOB sits between these two extremes. It gives the buyer control over the freight leg, which can reduce costs on high-volume lanes, while the seller handles export clearance. For promotional merchandise businesses running regular import programmes, negotiating freight contracts directly through a freight forwarder using FOB terms often produces better rates than accepting CIF pricing from suppliers.
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