What Does Fob or Free on Board Means?

Alright if you’re in Busan Port and a European guy asks you to sell him 20 tonnes of Korean rainbow colored bricks FOB Port Busan, what does that mean? Well, it simply means that you quote him the price for the 20 tonnes of rainbow colored bricks PLUS the following charges:

1) Haulage charges - This is the additional cost of the haulier or the big trucks you see carrying the big steel boxes known as containers. The cost of loading your bricks on to the container and then hauling it’s heavy ass all the way to Port Busan, is your haulage or transportation cost.

2) Forwarding Fee - Just ask your forwarder to quote you the forwarding fee and they will be more than happy to give you that cost.

Now, your duty is just to quote and send him his bricks to Busan Port, and then the guy will be handling everything from there. He will be appointing his own forwarding agent and have the ocean freight handled by him.

Ok, so the difference between FOB and Ex Works is that FOB includes the haulage or transportation cost to the port AND also the forwarding fee. Forwarders will help you manage the hauliers and ensure the smooth transportation of your goods from your factory to the port.

It is very important to note that you inform your customers that it is FOB and not CNF. This is because CNF is inclusive of the Ocean Freight which can be quite expensive for some destinations. You’ll wipe profit off if the margin for your goods is slim. So please do pay attention to communicate accurately the payment terms of your deal.

FOB is also a usually a fast way to quote your customers who are overseas. This is because forwarding fee is usually the same and does not go through fluctuation of any sort during a short time frame. The same goes for haulage unless there is a major move in crude oil prices. This is a great benefit as you need not wait for your forwarder or forwarding agent to give you the price for ocean freight. The lead time for you to file a quotation is also faster and hassle free.

In some cases, quoting FOB is good also to keep your quotation relevant and valid for a longer time because your customers may just be in their planning stage of their projects and any prices offered to them now is used as a reference and not acted upon as a purchasing price. By the time they are going to buy, you mostly likely will need to quote them.

So there you go, FOB in a silver platter for you. Remember, always know your shipping costs and double check your quotation for import and export deals. This way, you will not be quoting below your costs and lose the chance of doing any deal unnecessarily.
 
Another tip about not letting your cost go out of control is to make sure you have your currency rates checked from time to time.