FOB means Free On Board, one of the Incoterms rules published by the International Chamber of Commerce. Under FOB, the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment. From that point, the risk passes to the buyer, and the buyer pays for the main sea freight and insurance.
In garment export, "FOB price" usually means the price per piece or per dozen for garments delivered on board at the export port, including all materials, making, and the costs of getting the goods to the ship.
Strictly, FOB is a sea and inland waterway term. For container shipments, FCA is often more appropriate, but FOB remains widely used in garment trade. Follow the terms written in the buyer's contract.
What an FOB price includes#
| Element | Examples |
|---|---|
| Fabric | Main fabric, rib, lining, interlining, pocketing, with wastage |
| Trims and accessories | Thread, labels, buttons, zippers, hangtags, polybags, cartons |
| CM (cost of making) | Cutting, sewing, finishing and factory overhead. See CM cost |
| Processes | Printing, embroidery, washing, dyeing |
| Testing and inspection | Lab tests, third-party inspection where the seller pays |
| Inland transport | Factory to port |
| Export clearance and port charges | Customs formalities, handling at the port of loading |
| Commercial cost | Finance, bank charges, documentation, commission where applicable |
| Profit | The seller's margin |
What FOB excludes#
- Main sea freight from the port of shipment
- Marine insurance (buyer's choice under FOB)
- Import duties and taxes in the destination country
- Destination port charges and delivery to the buyer's warehouse
Building an FOB price#
where c is the commercial cost percentage and p is the profit percentage. Some companies add these on the manufacturing cost separately instead of compounding them. State the method on the cost sheet.
Worked example: basic T-shirt (per dozen)#
| Element | Calculation | Cost per dozen |
|---|---|---|
| Fabric | 2.32 kg × 4.50 per kg | 10.44 |
| Rib | 0.06 kg × 5.00 per kg | 0.30 |
| Trims | Labels, thread, polybag, carton share | 1.20 |
| CM | 12 × 10.5 SMV × 0.07 per minute | 8.82 |
| 12 × 0.10 | 1.20 | |
| Testing | Share of test costs | 0.24 |
| Manufacturing cost | 22.20 | |
| Commercial cost 5% | 22.20 × 0.05 | 1.11 |
| Subtotal | 23.31 | |
| Profit 8% | 23.31 × 0.08 | 1.86 |
| FOB per dozen | 25.17 |
FOB per piece = 25.17 / 12 = 2.10. The currency and values here are examples; use your own prices and cost per minute.
FOB, CM and CMT#
| Term | Who buys materials | Price covers |
|---|---|---|
| FOB (full package) | Manufacturer | Materials, making, overheads, delivery on board |
| CM or CMT | Buyer supplies fabric and trims | Cutting, making, trimming, overhead and profit |
Under full-package FOB, the manufacturer takes material risk (price, quality, delivery, wastage) and needs working capital to buy materials. The margin must reflect this.
FOB compared with other terms#
| Term | Seller pays up to |
|---|---|
| EXW (Ex Works) | Goods available at the seller's premises |
| FCA (Free Carrier) | Goods handed to the buyer's carrier at a named place |
| FOB | Goods on board the vessel at the port of shipment |
| CFR | FOB plus main sea freight to the destination port |
| CIF | CFR plus minimum marine insurance |
| DDP | Delivered to the buyer with import duties paid |
Common mistakes#
- Forgetting testing, inspection and inland transport.
- Using sample consumption instead of production consumption with wastage.
- Mixing per piece and per dozen values.
- Ignoring currency risk when materials are bought in one currency and sold in another.
- Quoting FOB when the buyer's contract uses a different Incoterm.
Use the garment costing calculator and the garment costing sheet to build FOB prices, and see garment costing for the full method.
Related guides#
- Fabric consumption: the fabric line, usually the largest cost.
- Bill of materials: every material that must be priced.
- Time and action plan: the delivery dates the FOB price commits to.
- List of top clothing brands in the world: the global buyers who usually purchase on FOB terms.