Landed Cost

Landed Cost Components

Calculating true landed cost requires accounting for: factory cost (or FOB price), international ocean or air freight, freight insurance, customs duties and tariffs (which can be 10-40% depending on product category and origin country), import value-added tax in some countries, customs broker fees, port handling and documentation costs, domestic transportation to distribution centers, and any miscellaneous fees. Missing components create hidden costs that erode expected margins.

Landed Cost and Sourcing Decisions

Sourcing decisions that appear favorable on factory cost alone may be uneconomical when landed costs are calculated. A factory with low labor costs but located far from shipping routes, facing high tariffs, or requiring expensive air freight due to long lead times may have higher landed costs than a more expensive but better-positioned supplier. Professional sourcing teams model total landed costs rather than relying on quoted factory prices alone.

Tariff and Trade Policy Impact

Landed costs are heavily influenced by tariff regimes and trade agreements. Changes in tariff rates (such as Section 301 tariffs on China imports) can dramatically shift the economics of manufacturing location. Sophisticated sourcing strategies include tariff planning: identifying origin country advantages, leveraging preferential trade agreements, and sometimes accepting higher factory costs in lower-tariff countries to achieve better total landed costs.

OSF Perspective

OSF emphasizes that true profitability analysis must begin with accurate landed cost calculation. Brands that optimize only factory cost while ignoring freight, duties, and logistics will consistently make suboptimal sourcing decisions. The brands that win in sourcing do rigorous total-cost-of-ownership analysis.

Related Terms

FOB  |  Sourcing  |  Tariff  |  Made-to-Order

Notable Brands

Professional fashion sourcing teams across all brands