What a FOB price actually hides
Three things the quote on the PI does not show you — and the two questions you should always ask before accepting a number from a factory you have not visited.
The Quote That Arrives by Email
It lands in your inbox with a polite subject line and a PDF attachment. Page one shows the product description, the quantity, the unit price, and the FOB total. Page two might list packaging details or a vague delivery timeline. What it does not show is where the margin lives, where the risk lives, and where the number will move before production is complete.
We have reviewed thousands of these pro forma invoices across China, Vietnam, and Bangladesh. The pattern is remarkably consistent. The FOB figure is never the figure. It is an opening position in a negotiation that has not started yet.
Three Omissions
1. The Raw Material Assumption
Most factory quotes are built on a raw material price that is either:
- Current spot price, which may shift before procurement
- A blended average from the last quarter, which smooths volatility but hides timing risk
- A forward price that the factory has not actually locked in
The quote rarely states which assumption it uses. When cotton or polyester shifts 8–12% in a quarter — which happens — someone absorbs that delta. The question is who, and when you find out.
2. The Labour Rate Floor
Factory labour rates in Asia are not static. Minimum wage adjustments, social insurance contribution changes, and seasonal availability all move the effective cost per hour. A quote built in January assumes a labour environment that may not exist in June.
"The unit price is firm for 30 days." This is common language. What it omits is that the factory's own labour contract may be renegotiated in 45 days.
3. The Quality Reserve
Every factory builds some buffer for defect rate, re-work, and final inspection fallout. The size of that buffer varies by facility, by product complexity, and by the factory's current order book pressure. None of this appears on the PI.
A factory running at 60% capacity will price defects differently than one at 95%. You will not know which situation applies from the quote alone.
Two Questions to Ask
Before accepting any FOB figure from a factory you have not visited, ask:
What raw material price date is this quote based on, and have you locked it?
The answer reveals how much commodity exposure you are carrying. If the factory has not procured or hedged the fabric, you are effectively speculating on fibre markets without knowing it.
What was your last-third-party audit result, and what non-conformances remain open?
This shifts the conversation from price to operational reality. A factory with open critical non-conformances is a factory where rework, delays, and quality failure costs are being socialised across all customers — including you.
The Real Number
The FOB price on the PI is a starting coordinate. The real number includes the assumptions behind it, the volatility those assumptions carry, and the operational risk that does not appear in any column. Understanding what the quote hides is the first step toward negotiating what it actually means.