FOB vs Landed Cost: The Difference and How to Use a Landed Cost Factor
FOB is the supplier's price at the port of loading; landed cost is what goods cost at your door. The difference, the FOB and CIF formulas, and how to price with a landed cost factor.
FOB (Free on Board) is the price of goods loaded on the vessel at the export port. Landed cost is FOB plus everything it takes to get the goods to your warehouse: freight, insurance, duties, taxes, clearance and inland charges. The ratio between the two is your landed cost factor, and it's the quickest way to price imported products correctly.
Importers compare supplier quotes on FOB because that's how suppliers quote. Then the shipment arrives and the real cost per unit is 25 to 60% higher. Comparing on landed cost, not FOB, is what keeps margins honest.
FOB, CIF and landed cost: the formulas
- FOB value = ex-works price + export packing + inland transport to the port + export clearance + loading
- CIF value = FOB + international freight + insurance
- Landed cost = CIF + import duty + non-recoverable taxes + customs broker and clearance fees + port and handling charges + inland transport to your warehouse
Import duty is usually calculated on the customs value, which in many countries, including India, is the CIF value. That's why freight and insurance raise your duty too. The full line-by-line breakdown is in the landed cost formula explained.
A worked example
An importer buys 1,000 units at USD 10 FOB Shanghai.
| Line | Amount (USD) |
|---|---|
| FOB value (1,000 × 10) | 10,000 |
| Ocean freight | 1,200 |
| Insurance | 60 |
| CIF value | 11,260 |
| Import duty at 10% of CIF | 1,126 |
| Clearance, port and handling | 450 |
| Inland transport | 300 |
| Landed cost | 13,136 |
| Landed cost per unit | 13.14 |
Recoverable taxes, such as import VAT or IGST you can claim back as input credit, are left out of landed cost because you get them back. Count them only if you can't recover them.
What is a landed cost factor?
The landed cost factor is landed cost divided by FOB value. In the example: 13,136 ÷ 10,000 = 1.31. Every USD 1 of FOB price costs you USD 1.31 delivered.
Once you know the factor for a product category and route, you can price new quotes in seconds: multiply the supplier's FOB unit price by the factor, then apply your margin. A supplier quoting USD 9.50 FOB means a landed cost of about USD 12.45 per unit.
When the factor stops being accurate
- Freight rates move. A factor built on last quarter's container rates can be badly out after a freight spike.
- Duty depends on the HS code. Two products on the same container can carry very different duty rates.
- Weight and volume differ. Freight and handling are charged by weight or cubic metre, not by value, so bulky low-value goods carry a higher factor.
- Exchange rates shift between order and payment.
Recalculate the factor per product group and per shipment, not once a year. A free landed cost calculator makes that a two-minute job; here's when a spreadsheet is enough.
FOB vs CIF: which should you buy on?
Buying FOB means you control freight and insurance, and usually get better rates through your own forwarder. Buying CIF is simpler but hides the freight margin inside the supplier's price. Either way, compare quotes on landed cost. The FOB vs CIF documents guide covers who produces which paperwork under each term.
Frequently Asked Questions
Is FOB the same as landed cost?
No. FOB covers the goods up to loading at the export port. Landed cost adds international freight, insurance, import duties, clearance and delivery to your premises.
How do you calculate a landed cost factor?
Divide total landed cost by FOB value for the same shipment. A factor of 1.35 means every 1 unit of FOB price costs 1.35 delivered.
What is the CIF formula?
CIF = FOB value + international freight + insurance. In many countries, including India, it's also the base for calculating import duty.
What is the FOB formula?
FOB = ex-works price + export packing + inland transport to port + export customs clearance + loading charges.
Bilexor's landed cost calculator works out landed cost per unit from FOB, freight, insurance and duty, so you can check a quote before you commit. Informational only; confirm duty rates and valuation with your customs broker.
Informational only — not legal, banking, tax, or customs advice. Always verify document and LC requirements with your bank, CHA / customs broker, and buyer before presentation.