I. Definition of FOB
What is FOB, and how are costs allocated? According to Incoterms® 2020, FOB (Free On Board) means delivery takes place on board the vessel at the port of shipment: the seller is responsible for delivering the goods to the designated port and loading them onto the vessel specified by the buyer, with the transfer of risk occurring the moment the goods are loaded;
the seller bears costs such as ex-factory costs, drayage (inland trucking), port miscellaneous charges, customs declaration fees, and documentation fees; the buyer bears costs such as ocean freight, insurance premiums, and destination port charges; seller obligations include loading contract-compliant goods onto the buyer’s designated vessel within the shipment period, issuing timely shipment notices, handling export formalities and obtaining licenses, and providing commercial invoices and shipping documents; FOB applies only to maritime or inland waterway transport—when quoting an FOB price, first clarify the division of responsibility: the goods are yours before loading and the customer’s after loading.
II.
Quotation Formula
FOB quotation formula.
Based on standard foreign trade quotation practices, calculating an FOB price involves three steps: first, calculate the cost of goods (ex-factory cost plus packaging and amortized sample costs); second, add domestic expenses (transportation from factory to port—e.g., $600–$1,000 per 20ft container from Yiwu to Ningbo, or $0.05–$0.30 per unit depending on order size—plus port miscellaneous charges, customs declaration fees, bank charges, documentation fees, and estimated loss/wastage); third, factor in the profit margin (total cost plus profit, divided by the exchange rate). The complete formula is: FOB price (USD) = (ex-factory price excluding tax + various domestic expenses) ÷ [1 – (VAT rate – tax rebate rate)] × exchange rate. The tax rebate formula is: FOB = (1 – tax rebate rate ÷ (1 + VAT rate)) × RMB price (including tax) ÷ spot exchange buying rate. Domestic expenses must be listed item by item;
missing even one means a financial loss.
III. Tax Rebate Calculation
How is the tax rebate factored in?
Under foreign trade policies, export tax rebates directly reduce the FOB cost basis: the rebate amount equals the purchase price of the export goods (including VAT) ÷ (1 + VAT rate) × tax rebate rate; the “exemption, credit, and refund” (ECR) amount equals the FOB price × export tax rebate rate. For example, if the production cost of export equipment is estimated at 1 million, the FOB price at customs declaration is 1.5 million, and both the VAT levy rate and rebate rate are 13%, the ECR amount is 1.5 million × 13% = 195,000. Actual cost = price including tax × [1 – tax rebate rate ÷ (1 + VAT rate)]; at a 13% rebate rate, an item with a tax-inclusive price of 100 RMB has an actual cost of approximately 88.5 RMB. The tax rebate acts as a deduction in the quotation; if a customer requests an FOB price and you fail to factor in the rebate, you are essentially gifting the rebate amount to the customer while also absorbing the domestic expenses yourself.
IV.
Exchange Rate Validity
Exchange rates and validity periods.
In quotation practice, the exchange rate is the core variable for FOB USD pricing: Spot Selling Rate—use the bank’s spot selling rate for the day (e.g., as found on the Bank of China’s official website), rounded to two decimal places; Validity Period—the quote must specify the validity of the exchange rate (e.g., calculated at 1 USD = 7 RMB, valid for 7 days; or 3 days during periods of high volatility); Hedging/Adjustment Clause—for orders with long lead times, stipulate that prices will be re-confirmed if exchange rate fluctuations exceed 2%; Currency Conversion Cost—the USD price is derived by dividing the RMB cost by the exchange rate (e.g., if the rate drops from 7.0 to 6.8, a cost of 100 RMB results in a USD price increase from 14.29 to 14.71)—the exchange rate is the most significant uncontrollable variable in FOB quotes, so clearly stating the validity period is essential to locking in profits.
V.
Quotation Standards
How to structure a professional quotation.
According to industry standards, an FOB quotation for automation components must be comprehensive: Product Name & Specifications—model, material, dimensions, tolerances, and surface treatment; Quantity & Unit Price—FOB USD unit price, currency, and port (e.g., FOB Ningbo); Cost Breakdown—itemized list of ex-works price, inland freight, port charges, customs declaration fees, documentation fees, and profit margin; Delivery & Validity—production lead time, quote validity period, and exchange rate benchmark; Payment Terms—e.g., T/T with 30% prepayment or L/C (Letter of Credit); Packaging—export packaging standards; Remarks—e.g., calculated at 1 USD = 7 RMB; ocean freight and insurance borne by the buyer; Terms Reference—Incoterms 2020 FOB [Named Port of Shipment]—the quotation is part of the contract, and the three elements of costs, exchange rates, and validity periods are all indispensable.
Conclusion
How should FOB prices for automation equipment components be quoted? The conclusion is “cost plus domestic expenses plus profit minus tax rebates, with the point of loading serving as the boundary”: Definition—FOB (Free On Board) means the seller covers the ex-factory price, trucking, port charges, and customs clearance, while the buyer covers ocean freight, insurance, and destination port fees; risk transfers once the goods are loaded onto the vessel. Formula—FOB equals ex-factory cost plus packaging, inland transport, port charges/customs clearance, banking/documentation fees, and profit, divided by the exchange rate. Tax Rebate—The rebate amount is calculated as the tax-inclusive price divided by (1 + VAT rate) and then multiplied by the rebate rate; for a 13% rebate rate, a tax-inclusive price of 100 RMB results in an actual cost of 88.5 RMB. Exchange Rate—Use the spot selling rate, retain two decimal places, specify the validity period, and renegotiate if fluctuations exceed 2%.
Quotation—Itemize product name and specifications, FOB unit price, cost breakdown, delivery time, validity period, exchange rate basis, and payment terms.
According to industry practice, quoting an FOB price is essentially defining the scope of liability: account for every penny prior to loading onto the vessel, and bear no financial responsibility for costs incurred after loading.
