I. FOB meaning

FOB, a commonly used trade term in international trade, is fully known as “Free on Board“. The core meaning of FOB is “Free on Board (named port of shipment)”. Its essence lies in that the seller is required to deliver the goods accurately to the buyer’s designated vessel at the named port of shipment. The moment the goods pass over the ship’s rail, the seller successfully fulfills the delivery obligation. From then on, in case of any loss or damage to the goods, all risks will be borne by the buyer.

II. Composition of Ocean Freight under the FOB meaning

(I) Domestic Transportation and Port-related Fees

1. Inland Transportation Fee

• Definition: It refers to the fees incurred in transporting the goods from the seller’s location to the designated port of shipment terminal.
• Transportation Modes and Cost Coverage: It covers various forms such as road, railway, and inland waterway transportation. For road transportation, it involves costs like fuel fees for transportation vehicles, toll fees, labor costs for drivers, and the depreciation cost of vehicle equipment. Railway transportation includes locomotive traction fees, rail occupancy fees, and loading and unloading platform usage fees. Inland waterway transportation involves expenses such as ship fuel fees, crew salaries, and waterway management fees. For example, in the Pearl River Delta region of China, many factories often use trucks to transport goods to the Port of Shenzhen, and all the fees generated during this process are the inland transportation fees.

2. Customs Declaration Fee

• Definition: It is the fee that an export enterprise or its agent needs to pay to the customs when declaring export goods.
• Basis for Charging: Customs brokers or freight forwarders charge the customs declaration fee because they provide a series of professional services. This includes accurately filling out the customs declaration form, carefully entering information such as the name, specifications, quantity, and value of the goods; sorting out and submitting relevant documents such as commercial invoices, packing lists, and certificates of origin; and assisting customs officers in opening the containers and checking the goods when the customs requires an inspection. The amount of the customs declaration fee is usually determined according to factors such as the type of goods, value, and the complexity of the declaration. Generally speaking, the more valuable the goods, the more complex the types, and the more cumbersome the declaration procedures, the higher the customs declaration fee.

3. Inspection and Quarantine Fee

• Definition: If the goods fall within the scope of legal inspection and quarantine, the seller must apply for inspection and quarantine to the inspection and quarantine institution and pay the inspection and quarantine fee.
• Charging Standard: The inspection and quarantine institution will conduct inspection, quarantine, and identification operations on the goods to ensure that they meet national standards and relevant regulations. The charging standard of the inspection and quarantine fee is closely related to the nature of the goods. For example, food products, due to concerns about consumer health, have more stringent inspection and quarantine procedures, and the inspection and quarantine fee is relatively higher. At the same time, it also depends on factors such as the quantity and value of the goods. Goods with a larger quantity and higher value will have a correspondingly higher inspection and quarantine fee.

4. Port Incidental Fees

• Port Loading and Unloading Fee: It refers to the fees incurred during the loading and unloading of goods at the port of shipment, including the fees for unloading the goods from the means of transportation (such as trucks, trains, barges, etc.) and loading them onto the ship, or vice versa. This includes the labor remuneration of the loading and unloading workers and the leasing, usage, and maintenance fees of the loading and unloading equipment (such as cranes, forklifts, conveyor belts, etc.).
• Port Construction Fee: That is, the port construction fee, which is a special fee levied on cargo owners to promote the continuous development of the port and expand its handling capacity. This fee is earmarked for infrastructure construction and maintenance projects of the port, such as the dredging and deepening of port waterways, the construction and expansion of wharf berths, and the construction of breakwaters, to ensure that the port can operate efficiently and meet the growing freight demand.
• Storage Fee: If the goods need to be temporarily stored at the port for a certain period, the port will charge a storage fee based on the storage time of the goods (calculated by the day or hour) and the storage area (in square meters, etc.), aiming to compensate for the costs incurred by the port in providing storage sites, security, management, and other services.

(II) Ocean Freight

1. Basic Freight

• Definition: It is a key component of ocean freight, calculated according to factors such as the type, quantity, volume, or weight of the goods, in accordance with the rates pre-set by the shipping company.
• Calculation Differences: Different categories of goods have completely different basic freight standards. For light and bulky goods represented by clothing, since they occupy a large space but have a relatively light actual weight, shipping companies usually calculate the basic freight according to the volume. For heavy goods such as mechanical equipment, due to their large own weight and high handling difficulty, shipping companies mostly calculate the basic freight based on the weight. Generally speaking, goods whose volume or weight exceeds the normal range will have a relatively higher basic freight.

2. Surcharges

• Bunker Adjustment Factor (BAF): Given the frequent fluctuations in international fuel prices, shipping companies impose a bunker adjustment factor on cargo owners to make up for the increase in fuel costs. This fee closely follows the trend of fuel prices and is adjusted regularly. It is usually calculated as a certain percentage of the basic freight. For example, when the fuel price increases by 10%, the BAF may increase accordingly, and it may be charged at a rate of 5% – 10% of the basic freight to ensure that the operating costs of the shipping company are balanced.
• Currency Adjustment Factor (CAF): When the main currency (such as the US dollar) relied on by the shipping company for settlement depreciates, in order to make up for the losses caused by the exchange rate decline, the shipping company will charge the currency adjustment factor from the cargo owners. Its calculation method is also based on a certain proportion of the basic freight and will be dynamically adjusted with the real-time changes in the currency exchange rate. If the US dollar depreciates by 5%, the CAF may be charged at a rate of 3% – 5% of the basic freight.
• Peak Season Surcharge (PSS): During the peak season of freight transportation, especially during periods such as the Christmas Eve in the European and American markets every year, the transportation demand shows a blowout growth, and the shipping company’s transportation capacity is in short supply. In order to regulate the supply and demand balance and obtain additional profits, the shipping company often charges a peak season surcharge. This fee is commonly seen during specific peak periods, and the amount is determined according to a certain proportion of the basic freight, such as being charged at a rate of 10% – 20% of the basic freight, and the specific amount depends on the market supply and demand situation and the shipping company’s strategy.
• Overweight Surcharge, Overlength Surcharge, etc.: Once the weight of the goods exceeds the standard weight specified by the shipping company, or the length exceeds the standard length, the shipping company will need to allocate special handling equipment during the transportation process, such as large cranes, extra-long flatbed trucks, etc. At the same time, the goods may occupy more cargo space. To compensate for these additional cost expenditures, the shipping company will separately charge an overweight surcharge and an overlength surcharge. The charging standard is comprehensively determined according to the degree of exceeding the standard and the specific situation of the goods.

Understanding the detailed composition of ocean freight under the FOB meaning is of great guiding significance for import and export enterprises in many aspects such as cost accounting, logistics planning, and trade negotiations, and can help enterprises move forward steadily in the tide of international trade.