FOB. Three letters that can make or break your landed cost calculation. If you've ever received a supplier quote marked 'FOB Shanghai' or 'FOB Guangzhou' and wondered exactly what you're agreeing to — this guide is for you. We break down what FOB means, who pays for what, when risk transfers, how it affects your Australian customs duty, and how it stacks up against CIF and EXW.
FOB stands for Free on Board. It's one of 11 standardised international trade terms — known as Incoterms — published by the International Chamber of Commerce (ICC). Incoterms define exactly who pays for what, and who carries the risk, at each stage of an international shipment.
Under FOB terms, the seller (your Chinese or Vietnamese supplier) is responsible for getting your goods to the named port and loading them onto the vessel. The moment those goods are on board the ship, risk and cost transfer to you — the buyer.
In plain English: FOB means the supplier does everything up to getting your goods on the boat. Everything after that — the ocean freight, insurance, unloading, customs clearance, and delivery to your Australian warehouse — is on you.
FOB is the most commonly used Incoterm for Australian importers sourcing from China and Vietnam, and for good reason. But like everything in international trade, the devil is in the detail.
Here's the clearest breakdown of where responsibilities split under FOB:
The transfer point is clear and unambiguous: once the goods are loaded on board the vessel at the origin port, responsibility is yours.
Say you're importing 500 units of gym equipment from a manufacturer in Guangzhou. Your supplier quotes you "FOB Guangzhou" at $18,000 AUD.
Here's what that means in practice:
Your total landed cost: approximately $22,800 AUD — versus the FOB quote of $18,000. That's a 27% difference. Understanding this from the start is what stops you from getting surprised by a $4,800 bill after the goods have already shipped.
There's a very specific reason FOB dominates Australian import contracts, beyond just the general advantages of cost control and flexibility.
Australia calculates customs duty on the FOB value — not the CIF value.
The Australian Border Force uses the FOB price (the value of goods at the origin port, before freight and insurance) as the basis for calculating import duty. This means if you import under FOB terms, your customs duty invoice directly matches the value on your supplier invoice — no ambiguity, no calculation gymnastics.
If you import under CIF terms (where the supplier includes freight and insurance in the price), you may need to back-calculate the FOB value for your customs declaration, which adds complexity and can lead to errors.
For most Australian importers, this alone makes FOB the cleaner, more straightforward choice.
The three Incoterms you'll encounter most often as an Australian importer sourcing from China or Vietnam are FOB, CIF, and EXW. Here's how they compare:
The supplier's responsibility ends at their factory gate. You arrange and pay for everything from there — inland freight in China, export customs clearance, ocean freight, insurance, Australian customs, and delivery. EXW gives you maximum control but maximum responsibility. Most Australian SMEs avoid EXW because managing export customs in China without a local agent is genuinely difficult.
The sweet spot for most Australian importers. The supplier handles getting goods to the port and onto the ship — the part that's difficult to manage from Australia. You control the ocean freight and everything on the Australian side. You pick your own freight forwarder, negotiate your own shipping rates, and choose your own insurance. Cost control meets practicality.
The supplier includes ocean freight and basic insurance in their price. Sounds convenient — and for first-time importers or small one-off orders, it can be. But there are trade-offs: you lose the ability to shop for freight rates, you're covered by only minimum insurance (Clause C), and the CIF value complicates your Australian customs declaration. Many suppliers also mark up CIF freight costs, so what looks like a convenient all-in price often works out more expensive than arranging freight yourself under FOB.
This is one of the most misunderstood aspects of FOB — and getting it wrong can leave you uninsured at exactly the wrong moment.
Under Incoterms 2020 (the current version, which came into effect 1 January 2020 and remains in force as of 2026), risk transfers from the supplier to the buyer when the goods are loaded on board the nominated vessel at the origin port.
This means:
This is exactly why taking out marine cargo insurance under FOB terms is so important. It's not required under FOB (unlike CIF where the seller must provide minimum Clause C coverage), but it's strongly recommended — especially for high-value shipments. A single container of goods can be worth tens of thousands of dollars. The premium for comprehensive Clause A marine insurance is a small fraction of that.
Let's get into the specifics that matter for your landed cost calculation.
When your goods arrive in Australia, the Australian Border Force calculates customs duty based on the customs value — which for most imports is the FOB value (the transaction value of the goods at the port of export, in AUD).
Your import duty is then calculated as: FOB value × applicable duty rate for your product's HS code.
On top of that, GST of 10% is calculated on the customs value + duty + international transport and insurance costs (i.e. approximately the CIF value).
So even if you import under FOB terms, GST is still calculated on a CIF-equivalent base. The key advantage of FOB for Australian customs is that your duty calculation is clean and directly matches your supplier invoice — no back-calculation required.
For a practical example: if your FOB value is $20,000 AUD and your product attracts a 5% duty rate, your customs duty is $1,000. Your GST would then be calculated on approximately $20,000 + $1,000 + $2,500 (freight + insurance) = $23,500 × 10% = $2,350.
See our Australia Import Duty Guide for a full breakdown of how to calculate your landed cost, duty rates by product category, and how to find the right HS code for your goods.
The number one mistake. FOB does not include ocean freight. Your FOB quote covers the supplier's costs up to and including loading on the vessel — that's it. Budget separately for freight, insurance, destination charges, and customs costs.
FOB doesn't require you to take out insurance — but you absolutely should. Once goods are on the vessel, they're your financial exposure. Comprehensive marine cargo insurance (Clause A) typically costs 0.3–0.8% of the cargo value. On a $30,000 shipment, that's $90–$240. A very small premium to protect against loss or damage in transit.
"FOB Shanghai" means goods are loaded at the Port of Shanghai. It does not mean delivered to Sydney or Melbourne. There are significant additional costs between the vessel loading and your warehouse receiving the goods.
"FOB China" is not a valid Incoterm. You must specify the named port — e.g. "FOB Shanghai" or "FOB Guangzhou" or "FOB Ho Chi Minh City". The named port determines exactly where the supplier's responsibility ends.
FOB only applies to sea and inland waterway transport. If you're shipping by air, the appropriate Incoterm is FCA (Free Carrier) — not FOB. Using FOB for air freight creates ambiguity about when risk transfers, since goods can't be "loaded on board" a vessel that doesn't exist.
Based on our experience managing hundreds of shipments for Australian businesses importing from China and Vietnam, here's what we recommend:
FOB stands for Free on Board. It means the seller is responsible for delivering goods to the named port and loading them onto the vessel. Once goods are on board, all costs and risks transfer to the buyer.
FOB is generally better for most Australian importers because Australia calculates customs duty on the FOB value, making your duty calculation straightforward. FOB also gives you control over freight costs and insurance. CIF is simpler for occasional or first-time importers who want the supplier to handle logistics.
No. FOB does not include ocean freight. The supplier covers costs up to and including loading on the vessel at the origin port. Ocean freight from the origin port to Australia is the buyer's responsibility.
Under FOB, the buyer is responsible for arranging their own marine cargo insurance. It's not required under the Incoterm, but it's strongly recommended — once goods are on board, you bear the risk for the ocean journey.
Under EXW, the supplier's responsibility ends at their factory — you manage everything including export customs clearance in China. Under FOB, the supplier handles getting goods to the port and loading them. FOB is significantly more practical for most Australian importers because export customs in China is difficult to manage remotely.
No — FOB only applies to sea and inland waterway transport. For air freight, use FCA (Free Carrier) instead. FOB specifies that risk transfers when goods are loaded on board a vessel, which doesn't apply to air shipments.
FOB Shanghai means the supplier is responsible for getting your goods to the Port of Shanghai and loading them onto your nominated vessel. Once on board at Shanghai, all costs and risks transfer to you as the buyer.
Australia calculates customs duty on the FOB value — the value of goods at the origin port, before freight and insurance. This makes FOB the cleanest option for Australian customs declarations, as your supplier invoice FOB value directly matches the customs value used for duty calculation.
.png)
