What does FOB mean in fashion sourcing?
FOB (Free On Board) is an Incoterms rule where the seller delivers goods on board the vessel at the named port of shipment, after which the buyer bears costs and risk.
In short
FOB, or Free On Board, is one of the Incoterms rules published by the International Chamber of Commerce. The seller clears goods for export and loads them on board the vessel nominated by the buyer at the named port, and risk passes to the buyer at that point.
How does it work in practice?
A brand sourcing knitwear from a factory receives an FOB price per unit, for example FOB with a named port of export. That price includes fabric, trims, making, factory overheads, profit and local costs to get the goods loaded. The brand then books freight through its freight forwarder, buys insurance and handles import clearance.
- The buyer nominates the vessel or carrier.
- The seller handles export clearance.
- Risk transfers once the goods are on board.
Why does it matter for fashion businesses?
FOB gives brands control over logistics, which helps consolidate shipments from several factories and negotiate freight rates. It also makes supplier quotes comparable, because each factory prices to the same point. However, the FOB price is only part of the landed cost; merchandisers must add freight, insurance, duties and handling to calculate true margin.
How is AI changing it?
Costing tools use machine learning to estimate FOB prices from tech pack data, materials and historical quotes, giving buyers a benchmark for negotiation. Predictive models for freight rates and transit times help teams compare FOB sourcing options from different countries on a landed cost basis rather than unit price alone.
Common pitfalls
- Using FOB loosely for air or container shipments where another Incoterms rule may fit better.
- Comparing FOB prices without adjusting for different freight and duty profiles.
- Not stating the Incoterms version and named place in the contract.
Frequently asked questions
Is FOB price the same as cost price?
No. FOB price is what the brand pays the supplier up to loading on board. The full cost price, or landed cost, also includes freight, insurance, duties and handling.
Who pays freight under FOB?
The buyer pays the main sea freight and insurance from the port of shipment. The seller covers costs up to loading the goods on board.
