What FOB means, in one line
FOB is one of the Incoterms, the standardised trade terms published by the International Chamber of Commerce (the current set is Incoterms 2020). FOB means Free On Board: the seller's responsibility runs up to and including loading your goods onto the vessel at the named port of shipment, and then it stops. Everything from that loaded deck onward is the buyer's. FOB is written with a port, because the port is the handover line. "FOB Shenzhen" or "FOB Ningbo" is correct. "FOB China" is meaningless and you should push back on it. Note that FOB is only valid for sea and inland-waterway shipping. If your goods move by air or express courier, FOB does not apply and a supplier using it is being loose with terms.
What the FOB price actually covers
This is where importers lose money, by reading an FOB quote as if it were the all-in cost. It is not. An FOB price from China includes:
- The cost of the goods themselves.
- Export packing and marking.
- Inland trucking from the factory to the port of shipment.
- Chinese export customs clearance and the origin documents.
- Loading the goods on board the vessel.
An FOB price does not include: ocean freight to your country, marine cargo insurance for the voyage, destination terminal handling, customs clearance at your end, import duty and VAT or GST, customs brokerage, or delivery to your door. To compare two suppliers honestly, you add your estimated freight and import costs on top of each FOB number. That total is your landed cost, and it is the only figure worth comparing.
Where does the risk pass?
Under Incoterms 2020, FOB risk transfers from seller to buyer at the point the goods are placed on board the vessel at the named port. Before that line, if the goods are damaged, lost, or stolen, it is the supplier's loss. After that line, it is yours, for the entire ocean voyage and everything that follows. That single fact has a practical consequence: under FOB, the long, expensive sea leg is at your risk and is not insured unless you buy cover. Marine cargo insurance is cheap relative to a container of goods, and FOB is exactly the term where you want it. Do not assume the freight forwarder's basic liability protects you. It usually does not come close to the value of the cargo.
FOB vs EXW: why FOB is easier
The term one step "earlier" than FOB is EXW (Ex Works), where the supplier only makes the goods available at the factory gate and the buyer handles everything after that, including arranging transport inside China and clearing the goods for export from China. The problem is that a foreign company generally cannot file Chinese export clearance itself. You would need a local agent to do it anyway. EXW looks cheap because the quoted number is just the goods, but it pushes the hardest in-China steps onto you. FOB hands the inland leg and export clearance back to the supplier, who is already set up to do them, and gives you a cleaner price that stops at a clear, comparable point. For most importers, especially on early orders, FOB is the better default.
FOB vs CIF and DDP: who books the freight
Going the other direction, CIF (Cost, Insurance and Freight) means the supplier arranges and pays the ocean freight and basic insurance to your destination port. It sounds convenient, and for a first small shipment it can be. The catch is control: under CIF the supplier picks the forwarder, which lets them mark up the freight and hand you origin charges you cannot question, and the risk still transfers at the origin port, not at your end. DDP (Delivered Duty Paid) goes all the way, with the supplier delivering to your door with duties paid. DDP is the most hands-off and also the easiest place to hide cost and cut corners on declared customs value. The general rule: FOB gives you control of the freight and a clean price split, CIF and DDP trade that control for convenience. Once you ship regularly, most importers move to FOB and book their own forwarder.
Common FOB mistakes importers make
- Treating the FOB price as the landed cost. Add freight and import duty before you decide anything.
- Not naming the port. "FOB Shanghai" is a term. "FOB China" is not. The port sets where charges and risk hand over.
- Letting the supplier nominate your forwarder. Under FOB you choose the carrier. Hand that to the supplier and you lose visibility on origin charges.
- Skipping cargo insurance. The ocean leg is at your risk under FOB. Insure it.
- Ignoring origin local charges. Some suppliers quote a low FOB, then add terminal handling or documentation fees at the port. Ask for the FOB price to be all-in to the ship's rail, in writing.
Where Mila Sourcing fits
When we run an order, the FOB quote is never taken at face value. We confirm what the supplier's price includes up to the port, name the port in writing, and build the true landed cost so you compare suppliers on the same basis, then we coordinate freight, insurance, and the handover inside one WhatsApp thread you can watch. That is part of Sourcing Activation and Full Production Management.
Related, if you're working out costs and terms right now: