FOB cost is the price your supplier charges to put finished goods on a vessel. Landed cost is what those goods actually cost by the time they reach your warehouse door—duties, freight, insurance, and every fee in between included. Both figures are real and both are useful; the mistake is reaching for the wrong one at the wrong moment.
Key takeaways
- FOB cost is the right benchmark for comparing supplier quotes; landed cost is the right benchmark for setting retail prices and checking margin.
- Duties alone can add 10–30 percent on top of FOB depending on the product category and country of origin—ignoring them at the quoting stage is one of the most common margin errors in production costing.
- A costed bill of materials that carries both FOB and landed cost in the same document—as platforms purpose-built for fashion encourage—removes the need to reconcile two separate spreadsheets at sign-off.
- Agent commissions, inland haulage, and port handling charges are frequently left out of landed cost estimates, then absorbed as surprises at the final margin review.
- The decision point, not the preference, should determine which cost you present: use FOB when negotiating with factories, landed cost when talking to merchants or buyers.
What exactly is FOB cost in apparel production?
FOB stands for Free On Board. In a standard FOB transaction, the supplier's responsibility—and cost—ends the moment goods are loaded onto the vessel at the origin port. Your FOB cost therefore covers:
- Materials (fabric, trims, labels, packaging) as priced in the bill of materials
- Cut, make, and trim (CMT) or full-package manufacturing charges
- Inland transport from the factory to the origin port
- Origin port handling and export documentation
What FOB does not include: ocean or air freight, destination port charges, import duties and taxes, insurance, customs brokerage, inland delivery to your warehouse, or any agent or sourcing commission.
For a production team, FOB is the number you use when you are evaluating competing factory quotes, negotiating with a supplier, or building a first-pass cost estimate before a shipping lane has been confirmed.
What is landed cost and what goes into it?
Landed cost—sometimes called total delivered cost or duty-paid cost—is the full cost of getting a unit from the factory floor to your receiving dock. It starts with FOB and adds every charge that occurs from the moment goods leave the origin port.
The landed cost build-up, line by line
| Cost element | Typical basis | Notes |
|---|---|---|
| FOB cost | Per unit | Starting point; includes CMT, materials, origin handling |
| Ocean/air freight | Per unit (allocated from shipment) | Varies significantly by mode, lane, and season |
| Marine insurance | % of cargo value | Usually 0.5–1.5% of insured value; often overlooked |
| Import duties (tariff) | % of customs value | Rate depends on HTS/HS code and country of origin |
| Customs brokerage | Per shipment (allocated) | Fixed fee spread across units in the shipment |
| Destination port handling (THC) | Per container (allocated) | Destination terminal handling charge |
| Inland haulage (destination) | Per shipment (allocated) | Drayage from port to warehouse or DC |
| Agent / sourcing commission | % of FOB or fixed per unit | Only applicable if you work through an agent |
| Testing and compliance | Per style or per unit | Lab testing, audits, certifications |
| Other (storage, fumigation, etc.) | As incurred | Varies by destination country and product type |
The sum of all rows above is your landed cost per unit.
FOB vs. landed cost: side-by-side comparison
| FOB cost | Landed cost | |
|---|---|---|
| What it is | Supplier price to load goods at origin port | Total cost to receive goods at your warehouse |
| Best for | Supplier negotiation, factory comparison, early-stage costing | Retail price-setting, margin calculation, final sign-off |
| Limits | Understates true unit economics; cannot be used for margin review | Requires confirmed shipping lane, duty rate, and agent structure |
| When it changes | When factory pricing, materials, or CMT rates change | When any element changes—freight market moves, duty reclassification, new agent |
| Who owns it | Sourcing or production team | Production costing team, in close coordination with logistics and finance |
Where each figure belongs in your workflow
Initial supplier quote stage
At this stage you are comparing factories, often across different countries of origin. Use FOB. It is the only cost both you and the supplier control, and it is the only cost that is directly comparable across quotes. Do not attempt a full landed cost at this stage unless you have a confirmed shipping lane—freight rates and duty rates are too variable to produce a reliable number from a hypothetical origin.
Range review and buy planning
Once you have shortlisted a factory and a country of origin, build a provisional landed cost. This is the moment to look up the correct HS code for each style, confirm the applicable duty rate for your destination market, and get a freight estimate from your forwarder. A provisional landed cost at range review prevents the situation where a style looks profitable on FOB but is margin-negative once duties and freight land.
A well-structured bill of materials is the backbone of this calculation. As the NetSuite guide to BOMs in fashion notes, a BOM treated as a living document can serve sourcing, costing, and production simultaneously—which means your duty and freight lines belong in the same document as your fabric and trim costs, not in a separate logistics spreadsheet.
Pre-production confirmation
Before you issue a purchase order, lock down your landed cost with actual quotes: a confirmed freight rate, a customs brokerage fee, and any agent commission in writing. This is also the moment to check whether your duty classification is correct—a misclassified HS code discovered at customs is expensive to fix and can delay a shipment.
For teams building out their production handover process, our guide to clothing line production steps (covering style handover sheets, tech packs, and sampling) is a useful reference for where costing sign-off sits in the broader sequence.
Final margin review
At margin review, only landed cost is relevant. Your merchant or buyer needs to know the true unit cost before setting a retail price or an IMU (initial markup). Presenting FOB at this stage—even with a note that it excludes duties and freight—creates the risk that those additions are underestimated or forgotten. Present the full landed cost, broken out by element so that any line can be challenged and updated if the shipping lane or duty rate changes.
The charges most often missed
In our experience, the following items are the most frequently omitted from landed cost estimates:
Agent commissions. If you source through a buying agent or trading company, their commission—typically 5–10% of FOB—belongs in your landed cost. It is a real cost of acquisition.
Inland haulage at destination. The cost of moving a container from the port to your warehouse or distribution centre is real and can be significant, particularly for inland destinations.
Marine insurance. Often treated as negligible, but it is a contractual requirement for most shipments and should be costed rather than assumed away.
Testing and compliance. Lab testing fees, audit costs, and certification charges (OEKO-TEX, GOTS, and similar) are per-style or per-shipment costs that belong in your landed cost, not in an overhead bucket.
Currency fluctuation buffer. If you are paying your factory in a currency other than your home currency, a small buffer—typically 1–3%—is prudent. This is not a hard cost, but experienced costing teams build it in.
Keeping both figures in one place
The practical challenge is maintaining FOB and landed cost in the same system rather than in parallel spreadsheets that drift apart. Platforms built specifically for apparel costing—such as Sync's apparel BOM software—are designed so that development costing and actual landed cost sit on the same BOM, with one vendor record feeding both figures. That architecture removes the reconciliation step that otherwise consumes time at every sign-off gate.
For teams earlier in their tooling journey, a well-structured costing sheet with clearly labelled FOB and landed cost sections—and a locked duty-rate lookup table by HS code—achieves much of the same discipline without a dedicated platform.
Pros and cons at a glance
FOB cost
Pros
- Simple to obtain and compare across suppliers
- Directly negotiable with the factory
- Stable reference point unaffected by freight market volatility
- Useful for early-stage go/no-go decisions
Cons
- Does not reflect true unit economics
- Cannot be used for margin calculation
- Encourages a false sense of cost certainty if used beyond the quoting stage
Landed cost
Pros
- Reflects the real cost of a unit in your warehouse
- Required for accurate margin and retail price-setting
- Forces the team to confirm duty classification and freight lane early
- Surfaces hidden costs (agent fees, testing, insurance) before they become surprises
Cons
- Requires more inputs and coordination across sourcing, logistics, and finance
- Can be volatile if freight rates or duty rates change between estimate and shipment
- More complex to maintain across a large range without dedicated tooling
Who should use which figure
Sourcing and production teams negotiating with factories: FOB is your primary working number. It is the cost you can influence directly through negotiation, material substitution, and CMT efficiency.
Production costing teams building range plans: You need both. FOB for factory comparison; landed cost for the range plan that goes to merchandising.
Merchants, buyers, and finance: Landed cost only. Any FOB figure presented to this audience should be clearly labelled as a partial cost and accompanied by a landed cost estimate, even if provisional.
Logistics and compliance teams: Landed cost, with particular attention to the duty, brokerage, and freight lines that sit within their remit.
FAQ
What is the difference between FOB cost and landed cost in apparel? FOB cost covers manufacturing and origin charges up to loading on the vessel. Landed cost adds freight, import duties, insurance, customs brokerage, inland haulage, and agent fees—everything it takes to get the goods to your warehouse.
Can I use FOB cost to set my retail price? No. FOB excludes duties, freight, and several other real costs. Using it to set retail prices will produce a margin that is lower than planned once those costs are added. Always use landed cost for pricing decisions.
How do I calculate the duty portion of landed cost? Identify the correct HS (Harmonized System) code for your product, confirm the applicable duty rate for your destination country and the country of origin, then multiply that rate by the customs value (usually the FOB value). Your customs broker can confirm the rate and the valuation basis.
What is a typical gap between FOB and landed cost? It varies by product, origin, and destination, but a gap of 20–40% above FOB is common for apparel imported into major Western markets once duties, freight, and all ancillary charges are included. High-duty categories and air-freighted shipments can push this higher.
Where does agent commission fit in the costing structure? Agent commission is a cost of acquisition and belongs in landed cost, typically expressed as a percentage of FOB. It should appear as its own line in your costing sheet so it can be tracked, challenged, and updated independently of factory pricing.
Further reading
- A Guide to the Bill of Materials (BOM) in the Fashion Industry — NetSuite
- Apparel BOM Software: Costed Bill of Materials — Sync
- Clothing Line Production: How to Get Ready for Manufacture — The Fashion Business Coach