FOB vs Landed Cost: What Is the Difference?
FOB and landed cost measure the same shipment at different points. Learn the difference and why landed cost is the only fair comparison.
Key Takeaways
- FOB (Free on Board) is the price at the point goods are loaded onto the shipping vessel
- Landed cost adds all subsequent costs: freight, insurance, duty, and clearance
- Always compare suppliers on landed cost, not FOB — freight and duty can double the FOB price
- A lower FOB price from a distant supplier may have a higher landed cost than a nearby supplier
What FOB means
FOB (Free on Board) is an Incoterm defining the point at which the seller's responsibility ends and the buyer's begins. Under FOB, the seller delivers goods to the named port and loads them onto the vessel. Beyond that point — ocean freight, insurance, destination port charges, import duty, customs clearance, and inland delivery — the buyer bears all costs.
What landed cost adds
Landed cost is the FOB price plus every cost incurred to get goods from the ship to your warehouse: ocean or air freight, marine insurance, destination port handling charges, import duty (based on the HS code and country of origin), customs clearance agent fees, and inland delivery from port to warehouse.
Why the comparison matters
Many buyers compare suppliers on FOB price alone, because that is what the supplier quotes. This leads to bad decisions. A supplier in Guangzhou quoting £8 FOB may have a higher landed cost than a supplier in Istanbul quoting £9 FOB, because the shorter freight distance and different duty rate more than compensate for the higher FOB price.
Building a landed cost comparison
For each supplier option, build a landed cost model: FOB price + estimated freight + insurance (0.3-0.5% of cargo value) + import duty (HS code rate applied to CIF value) + customs clearance fee (typically £100-300 per shipment, amortised over units) + inland delivery. This takes 30 minutes per supplier but ensures you are comparing the true economic cost.
Landed cost per unit
Divide your total landed cost by the number of units in the shipment to get your landed cost per unit. This is the floor for any pricing decision and the starting point for your margin calculation. This is the number that should drive your ranging and pricing decisions, not the supplier's FOB quote.