FOB Production in the Philippines
If you are sourcing products or running a manufacturing business in the Philippines – whether it’s furniture in Cebu, electronics in Laguna, textile in Davao City, or garments in Taytay – you will inevitably encounter the acronym FOB.
Depending on who you are talking to, “FOB” can mean two very different things. It can be a legal shipping term defining who pays for a lost cargo container, or it can be a production model that defines who buys the fabric for your t-shirts. This guide breaks down exactly what Free On Board (FOB) means for Philippine businesses and how it differs from the popular CMT (Cut, Make, Trim) model.
1. The Two Meanings of FOB
To navigate the industry correctly, you need to know which “FOB” your supplier is talking about.
A. The Manufacturing Definition (“Full Package”)
In the Philippine garment and export industry, when a factory quotes you an “FOB Price”, they are usually offering a Full Package service.
- What they do: The factory sources the raw materials (fabric, wood, buttons), provides the labor, handles the packaging, and delivers the goods to the port.
- What you do: You simply provide the design and pay for the finished unit.
B. The Legal Shipping Definition (Incoterms)
Once the goods leave the factory floor, FOB becomes a logistics term (Incoterms). According to international standards, FOB (Free On Board) means the seller (factory) is responsible for the goods only until they are loaded onto the shipping vessel.
Key Takeaway: As soon as the cargo crosses the ship’s rail at the port (e.g., Port of Manila), the risk transfers to you. If the ship sinks on the way to the US or Europe, that is the buyer’s loss, not the factory’s.
2. FOB Production vs. CMT: Which is Right for You?
In the Philippines, the main alternative to FOB production is CMT (Cut, Make, Trim). Here is how they compare:
| Feature | FOB (Full Package) | CMT (Cut, Make, Trim) |
| Materials | Factory finds and buys materials. | You buy and ship materials to the factory. |
| Responsibility | Factory is liable for fabric defects. | You are liable for material defects. |
| Control | Less control over material sources. | Total control over material quality. |
| Ideal For | Brands wanting a “hands-off” solution. | Brands with established textile suppliers. |
3. How FOB Pricing is Calculated in the Philippines
If you request an FOB quote from a Philippine supplier, the unit price will typically cover:
- Raw Materials: Sourcing costs for textiles, wood, or components.
- Labor & Overheads: Wages, plus electricity (which is a significant cost factor in PH manufacturing).
- Local Logistics: Trucking from the production zone (e.g., PEZA zones in Cavite) to the port.
- Export Documentation: Processing fees for Philippine Customs.
4. Why Choose FOB in the Philippines?
Convenience: The primary benefit of FOB production is convenience. You do not need to navigate the complex Philippine customs system to import raw materials yourself. The factory utilizes its local supply network to get the job done.
Accountability: In an FOB model, if the finished product has a defect caused by poor quality fabric, the factory cannot blame the supplier – because they are the supplier. They are responsible for the quality of the product from start to finish.
