FOB is the most common Incoterm for Chinese chemical exports to the United States, Australia, and Europe. The seller’s job ends when the cargo is loaded on board the vessel at the named Chinese port. From that moment the buyer owns the risk, owns the cost, and owns the freight booking.
What FOB Shanghai actually covers and what it doesn’t
Under FOB Shanghai (or FOB Qingdao, or FOB Nanjing), the Chinese seller is responsible for:
- Producing the goods to specification
- Export packaging including UN-certified packaging for DG cargo
- Inland transport from factory to the port
- Chinese export customs clearance
- Loading the cargo on board the vessel
- Producing the bill of lading, commercial invoice, packing list, COA, and MSDS
The seller is not responsible for:
- Sea freight (buyer arranges and pays)
- Marine insurance (buyer arranges and pays, and you should always carry it)
- Destination port charges (THC, terminal handling)
- Destination customs clearance and duties
- Destination delivery from port to warehouse
FOB vs CIF: the working buyer’s choice
CIF bundles freight and insurance into the seller’s quote. FOB unbundles them. For first-time importers CIF is simpler, one number, the cargo arrives at your port, you handle clearance from there. For volume buyers FOB is almost always cheaper. The reason: a Chinese factory quoting CIF marks up the freight by 5 to 15 percent on top of the carrier’s actual rate, partly as margin and partly as buffer against rate fluctuation between booking and sailing. A buyer with their own freight forwarder gets the carrier rate without the markup.
When FOB is the wrong choice
FOB is not always right. Three situations where it fails:
- DG cargo with no DG-experienced forwarder on the buyer side. The carrier booking for a Class 3 or Class 6.1 shipment is more demanding than for general cargo. If the buyer’s forwarder cannot handle the IMDG paperwork, the booking fails and the cargo sits at the warehouse.
- First shipment from a new factory. Until you trust the factory’s ability to actually load on time, CIF or DDP shifts more accountability onto the seller. After two or three clean shipments you can move to FOB.
- Small parcels under one full container load. For LCL (less-than-container-load) cargo the freight cost difference between FOB and CIF is small, and the consolidation logistics make FOB more painful than it is worth.
What “FOB price” really means in a Chinese factory quote
When a Chinese factory writes “USD 1,250 / MT FOB Shanghai,” that price includes the cargo at the ship’s rail in Shanghai. It does not include sea freight, insurance, or any destination cost. Buyers new to FOB sometimes assume the cargo arrives at their port for that price, it does not. Always confirm the basis by writing “FOB Shanghai (Incoterms 2020)” on the purchase order. The 2020 reference matters because the rules around the term were last revised in that year.
When FOB is the right choice and when it is not
FOB is the default for most Chinese chemical exports because it draws a clean line: the factory does what it does well (production, export documentation, port handling) and the buyer does what it does well (carrier negotiation, marine insurance, inland routing at the destination). For volume buyers running multiple containers per month, FOB unlocks the carrier-side margin that the factory would otherwise build into a CIF or DDP quote.
FOB is the wrong choice for buyers without freight-forwarder relationships at the load port, for one-off small cargoes where the freight-booking overhead is not worth the saving, and for cargoes where the buyer wants single-counterparty accountability for delivery. In those cases CFR or CIF transfers the freight booking back to the factory at a typically-modest premium.
Risk transfer at the ship’s rail
Under Incoterms 2020, the risk-transfer point under FOB is the moment cargo crosses the ship’s rail at the named port of loading. Before that point the factory owns risk; after that point the buyer owns risk. This matters in two practical situations. First, the buyer’s marine insurance must be in force from the moment of risk transfer onwards; insurance cover that starts only at the destination port leaves a coverage gap. Second, damage during loading (drops from the crane, cargo shifting in the container during berth transfer) is the buyer’s claim against the carrier, not the factory’s responsibility. Specify FOB Incoterms 2020 with the named port to avoid ambiguity about the precise risk-transfer moment.
Related Incoterms
CIF: seller pays freight and insurance to the destination port. EXW: buyer collects from the factory. DDP: seller delivers door-to-door, all costs and duties paid. Each is appropriate for different buyer experience levels and freight volumes.