What is an FOB price?
An FOB price, short for Free On Board, is the price of your goods delivered and loaded onto the vessel at the named port of shipment. Up to that point the supplier pays; from that point, you do.
- What the supplier covers: making the goods, packing them for export, inland haulage to the origin port, export customs clearance, and loading them on board the ship.
- What you cover from there: the main sea freight, cargo insurance, destination charges, import duty and clearance, and final delivery to your warehouse.
- Where risk transfers: the moment the goods are on board the vessel at the origin port. If they are damaged or lost after that, it is your problem, not the supplier's, which is why insurance from that point is on you.
So an FOB price is not the cost of the garment at your door. It is the cost of the garment loaded on the ship in the producing country, and everything after the ship is added on top.
What are Incoterms, and where FOB sits
FOB is one of the Incoterms, a set of 11 three-letter rules published by the International Chamber of Commerce that define where the seller's responsibility ends and the buyer's begins. First issued in 1936, the current version is Incoterms 2020.
They split into two groups. Seven work for any mode of transport (EXW, FCA, CPT, CIP, DAP, DPU, DDP), and four are for sea and inland waterway only (FAS, FOB, CFR, CIF). FOB belongs to the sea group, which matters, because using it for air or courier shipments is technically wrong.
One thing Incoterms do not cover: they set who pays and who bears the risk, not when ownership passes or when you pay the invoice. Title and payment terms are separate clauses in the contract.
FOB vs EXW: who pays for what
The most common choice a buyer faces is FOB against EXW, and they sit at opposite ends of supplier involvement.
- EXW (Ex Works): the supplier only makes the goods available at their own factory or warehouse. You arrange and pay for everything after that, including export clearance in the supplier's own country, which is awkward for a foreign buyer to handle.
- FOB (Free On Board): the supplier takes the goods all the way onto the ship, export cleared. You pick up the shipment at the origin port and carry it home.
For most apparel buyers FOB is the safer default, because it puts origin-country logistics and export paperwork on the party who is actually in that country. EXW looks cheaper on paper but hands you costs and customs steps you cannot easily control from abroad.
The trap is comparing the two quotes head to head. An EXW price is genuinely lower, because it excludes the inland transport, export clearance and loading that an FOB price includes. Once you add those back, the gap usually narrows or disappears, and you have taken on the harder end of the job. Unless you have a strong agent at origin, an EXW saving is often a false economy.
FOB vs CIF, CFR and DDP
Beyond EXW, a buyer meets a handful of other terms. The quick way to read them is by how far down the chain the seller keeps paying.
- CFR (Cost and Freight): the seller pays freight to your destination port, but risk still passes to you when the goods are on board at origin, and insurance is your call.
- CIF (Cost, Insurance and Freight): like CFR, plus the seller buys insurance, though only minimum cover under Incoterms 2020. Risk still transfers on board at origin, so the insurance protects you, not the seller.
- DDP (Delivered Duty Paid): the seller carries everything to your door, including import duty and clearance. It is the most seller-heavy term, simple for you but usually priced at a premium and dependent on the seller handling your country's customs.
The pattern is a ladder. EXW puts the most on you, DDP puts the most on the seller, and FOB, CFR and CIF sit in between, each moving the freight and insurance line a step further down the chain.
Which rung suits you depends on your own logistics muscle. A brand with a freight forwarder and volume usually wants FOB, so it controls the ocean leg and consolidates shipments. A small buyer with no forwarder and one supplier may prefer CIF or even DDP, paying a premium to have the seller handle the shipping it could not arrange well itself. The cheapest term on paper is rarely the cheapest once your own capability is priced in.
FOB vs FCA: the container problem
Here is the nuance most buyers miss. FOB was written in the age of loose cargo lowered onto a ship, but almost all apparel now moves in containers packed at the factory, and that breaks FOB's logic.
- The mismatch: with a container, the supplier loses physical control when the box leaves the factory, yet under FOB the risk does not pass to you until it is loaded on the vessel, days later at the port. Nobody clearly owns the goods in between.
- The ICC's answer, FCA: Free Carrier transfers risk when the goods are handed to the carrier, at the container yard, which matches how a modern move actually works. The ICC has recommended FCA over FOB for containerised cargo since 2010.
- Why the trade still says FOB: banks financing a letter of credit want an on-board bill of lading, which FOB produces naturally, so exporters keep using it. Incoterms 2020 added an option in FCA to get that on-board document, but habit is strong.
For a buyer, the practical takeaway is to know that an FOB container quote carries a small risk-transfer gap at origin, and that FCA is the cleaner term if your supplier and bank will accept it.
Why apparel sourcing runs on FOB
Ask a garment factory for a quote and the number that comes back is most often an FOB price, written as FOB followed by the port, such as FOB Shanghai or FOB Dhaka. The two common alternatives are CMT, where you supply the fabric and the factory quotes labour only, and LDP or DDP, where it quotes all the way to your door, which US importers increasingly ask for. But FOB stays the default, for good reasons.
- It is a clean comparison point: an FOB price bundles the garment plus all origin-side costs into one figure, so you can compare two factories in different countries on the same basis before freight muddies it.
- It matches how brands buy: most brands consolidate freight across suppliers with their own forwarder, so they want the goods handed over at the origin port, not shipped piecemeal. FOB fits that sourcing model.
- It keeps export paperwork local: the factory clears its own country's exports, which it knows how to do and has the licences for, rather than leaving a foreign buyer to arrange customs steps in a country it does not operate in.
An FOB garment price therefore includes the cost to make, the trims and fabric, packing, inland transport and export clearance, and loading. It does not include the freight across the ocean or anything that happens in your country.
From FOB price to landed cost
The mistake that wrecks a margin is treating the FOB price as the cost of the goods. It is only the starting figure. Everything the buyer pays after the ship has to be added to get the real cost.
The full number is the landed cost: the FOB price plus sea freight, cargo insurance, import duty and taxes, customs and handling, and final delivery. Depending on the lane and the duty rate, those additions can move the true cost well above the FOB figure.
So an FOB quote is where a costing starts, not where it ends. Before comparing it to a target price or a competitor, run it through to landed cost, because a low FOB price from a distant port with a high duty rate can land dearer than a higher FOB price from closer to home.
- A duty quirk worth knowing: US customs assess import duty on the FOB value, before international freight is added, while the EU and most other markets calculate duty on the CIF value. The term you trade on can therefore change the base the duty is charged on, not just who books the freight.
How to use Incoterms in a sourcing contract
On a purchase order or supplier agreement, an Incoterm is only useful when it names the rule, the place, and the version, and when both sides read it the same way.
- Name the term, the port, and the year: write the full form, such as FOB Shanghai, Incoterms 2020, so there is no doubt which rule, which port, and which edition applies.
- Know exactly where risk passes: tie your cargo insurance to that point. Under FOB, CFR and CIF that is on board at origin, so you are exposed from the port even when the seller arranged the freight.
- Do not confuse it with price terms: the Incoterm sets cost and risk, not payment or title. Keep it separate from your payment schedule and from the sourcing and quality clauses in the same contract.
Knowing which Incoterm, port and cost basis fit a given supplier, country and product is the fashion-native detail Apshan's Nari knowledge graph answers, cited to source, inside the AI assistant your team already uses. Request access.