FOB vs Landed Cost: The Difference, the Formula, and a $10 → $13.88 Worked Example

FOB and landed cost are not two names for the same number — they're two different points in your supply chain. FOB (Free on Board) is the price of the goods delivered onto the vessel at the origin port. Landed cost is what those goods actually cost by the time they're sitting in your warehouse — FOB price plus ocean or air freight, insurance, customs duties and tariffs, clearance fees, and final delivery. Comparing supplier quotes on FOB alone, or setting retail prices from FOB, is one of the fastest ways to discover your margin was imaginary.

FOB vs Landed Cost at a Glance

	FOB price	Landed cost
What it covers	Goods + export clearance + delivery on board at origin port	Everything: FOB + freight + insurance + duty/tariffs + clearance + inland delivery
Where it's measured	Origin port (e.g. Shanghai, Ningbo)	Your door (warehouse, FBA center, store)
Who pays what comes after	You — freight, insurance, duty, delivery	Nothing left to add
Use it for	Comparing supplier quotes under the same term	Pricing, margin, and supplier-country decisions

FOB is an Incoterm — a rule about where the supplier's responsibility ends. Landed cost is an accounting result — the sum of every cost it took to get the product to you. That's why an "FOB $10 per unit" quote can turn into a$ 13–$15 landed unit cost once duty and freight are added, and why two FOB quotes from different countries can flip order once tariffs enter the math.

The FOB-to-Landed-Cost Formula

Landed cost = FOB price + everything below:

International freight (ocean or air)
Cargo insurance
Customs duty (HTS/TARIC rate × customs value)
Additional tariffs where applicable (Section 301, Section 232)
Customs clearance and entry fees (broker, MPF and HMF)
Destination port and handling charges
Inland freight to your warehouse

Two details catch importers out:

U.S. duty is assessed on the FOB customs value — freight and insurance are not dutiable in the U.S., so a lower FOB with higher freight can genuinely mean less duty. (The EU works the other way: CIF value is dutiable.)
Punitive tariffs stack on top of the standard rate. A 6% HTS rate on Chinese goods can become 31% with Section 301 — against the FOB value, not the freight-inclusive one.

For the full component-by-component walkthrough, see our step-by-step landed cost guide.

Worked Example: FOB $10,000 → Landed$ 13,880

Say you buy 1,000 units at FOB Shanghai $10 each —$ 10,000 — shipping to the U.S. in a shared container:

Cost line	Amount
FOB value (dutiable basis in the U.S.)	$10,000
Ocean freight (LCL) + insurance	$1,450
Standard HTS duty at 6% × $10,000	$600
Section 301 additional tariff at 7.5% × $10,000	$750
Entry fees (broker, MPF, bond)	$330
Port handling + inland delivery	$750
Total landed cost	$13,880

Your real unit cost is $13.88, not$ 10 — a 39% uplift. If you'd priced at a "healthy" 50% margin over FOB, most of that margin just left the building. This is also why supplier comparisons only work on landed cost: an FOB $10.80 quote from a country with zero tariff exposure beats the$ 10.00 Chinese quote in this example by roughly $0.60 per unit.

FOB vs LDP (Landed Duty Paid): Where It Fits

LDP — Landed Duty Paid — is a commercial term (common in apparel and footwear) where the supplier quotes you a price with freight, customs duty, and delivery already included. It's used interchangeably with DDP (Delivered Duty Paid), the official Incoterm with the same effect: the quoted price is essentially your landed cost.

So the FOB vs LDP comparison is really the two ends of the same build-up: an FOB quote is your landed cost before freight, duty, and delivery are added; an LDP quote is the supplier's version of your landed cost after they've added them — with their assumptions and margin baked in where you can't see them.

That convenience has two catches:

You're trusting the supplier's duty math. The tariff classification and duty rate are baked into the price where you can't see them; a misclassification is now your compliance risk on someone else's paperwork.
You can't optimize what you can't see. With FOB you can shop freight, verify the HS code, and claim FTA rates yourself. With LDP/DDP you pay for the supplier's estimate of all of that, plus their cushion.

A good discipline: even when quoted LDP, model the FOB-to-landed build-up yourself and compare. If the LDP price is far above your modeled landed cost, that gap is negotiable. For the full breakdown — LDP vs DDP, ex-factory cost, and the EXW-to-landed formula — see our LDP (Landed Duty Paid) guide.

Which Number Should You Use When?

Negotiating with a supplier → FOB (same term for every quote, so the comparison is clean).
Choosing between supplier countries → landed cost (tariffs and freight differ by origin and can reverse the ranking).
Setting prices and calculating margin → landed cost, always.
Filing customs entry (U.S.) → FOB value is your customs value basis.

The gap between the two numbers is exactly where sourcing mistakes hide — and it's product- and origin-specific.

Run Your Import Analysis →

Running the same HS code across 20+ supplier countries with duties, Section 301/232 exposure, and freight included shows you the true landed ranking in about 30 seconds, before you commit to a purchase order — that's exactly what ImportCostPro's analysis does.