Landed Cost vs FOB: How to Price International Orders
FOB pricing is what your factory charges. Landed cost is what your customer actually pays at the door. Confuse them and your margin disappears in customs fees and unhappy buyers.
Short version. FOB price is what you sell goods for at the port of origin — typically the factory price plus inland freight to the dock. Landed cost is what your customer actually pays at the door — FOB plus ocean / air freight, insurance, customs duty, brokerage, last-mile, and any taxes. The difference can be 30–60% of the FOB price, and treating them as the same is the most common pricing mistake in B2C cross-border commerce.
The components
A complete landed-cost calculation has these components, in shipment order:
- FOB price. Cost of goods at the port of origin, ready for loading. Includes manufacturing cost + inland transport in the country of origin + export documentation. This is what ends up on your commercial invoice as the declared value when the Incoterm is FOB.
- International freight. Ocean container rate, air freight per kilo, or courier shipping rate.
- Insurance. Typically 0.3–0.5% of (FOB + freight) for marine cargo all-risks. Higher for high-value, fragile, or war-zone-routed shipments.
- Customs duty.A percentage of the customs value, set per HS code by the destination country’s tariff. Ranges from 0% to 100%+ depending on category and FTA eligibility. See the duty valuation post for the calculation methods.
- Import VAT / GST / sales tax. Applied on top of customs value + duty, typically 10–25%. EU VAT averages 21%; UK VAT is 20%; Canadian GST 5% + provincial PST.
- Customs brokerage fees. $50–$300 per shipment for a licensed broker to file the entry, depending on complexity. Couriers (DHL, FedEx, UPS) charge $15–$75 per de-minimis-cleared shipment as a clearance fee.
- Port / terminal fees. Demurrage, storage, container handling — usually nominal but add up if the shipment sits.
- Last-mile delivery.From port of discharge or customs warehouse to the consignee’s door.
- Reverse logistics buffer. A percentage allocated for returns, damages, and customer-service write-offs. Standard is 3–7% of landed cost for B2C.
Worked example: $1,000 FOB shipment, US → Germany
Suppose you sell a piece of industrial equipment. FOB Houston is $1,000. The buyer is in Berlin.
| Line | Amount | Notes |
|---|---|---|
| FOB price | $1,000 | Per the commercial invoice |
| Sea freight (Houston → Hamburg, LCL) | $220 | Carrier quote |
| Marine insurance | $5 | 0.4% of CIF |
| CIF customs value | $1,225 | Sum of above; basis for EU duty |
| EU customs duty (3% MFN, hypothetical) | $37 | Per HS code from TARIC |
| Duty-paid customs value | $1,262 | CIF + duty; basis for VAT |
| German import VAT (19%) | $240 | VAT on duty-paid value |
| Customs broker fee | $80 | Flat fee per entry |
| Hamburg port fees | $25 | Container handling |
| Last-mile (Hamburg → Berlin) | $60 | Trucking |
| Landed cost at consignee’s door | $1,667 | 67% over FOB |
The customer pays $1,667to receive a $1,000 FOB shipment. If you quoted them “$1,000 plus shipping”, you set them up for surprise charges of $667 at the door — half a dozen line items they didn’t expect. That’s the gap DDP-style landed-cost pricing closes.
When to quote FOB and when to quote landed cost
Three commercial models, three pricing approaches:
Quote FOB (B2B, large established trade)
Both parties are sophisticated. The buyer has a customs broker relationship, an EORI / EIN, and forecasts duty / VAT internally. FOB is portable across destinations and lets the buyer pick their own freight forwarder. Standard for industrial trade, raw materials, machinery.
Quote landed cost (B2C cross-border e-commerce)
The customer doesn’t have a broker, doesn’t know what duty rate applies, won’t accept surprise charges. Quoting landed cost upfront — and using DDP as the Incoterm so the seller pays — is the difference between conversion and cart abandonment.
Quote both (negotiated B2B)
Sales conversations often start with FOB and progress to a full-landed-cost line-item breakdown for the buyer’s budget team. A clean quote document shows both numbers and labels which line items are seller-paid vs buyer-paid based on the chosen Incoterm.
How Incoterm choice affects the math
The Incoterm doesn’t change the total landed cost — it changes who pays which line. Looking at the same example:
- EXW: Buyer pays everything from origin warehouse.
- FOB: Buyer pays international freight + duty + VAT + broker + last-mile.
- CIF: Seller pays freight + insurance to destination port; buyer pays duty + VAT + last-mile.
- DAP: Seller pays everything except duty + VAT; buyer pays those.
- DDP: Seller pays everything to the buyer’s door, duty and VAT included.
See the Incoterms 2020 chart for the full breakdown, and DDP vs DAP for the e-commerce decision.
FAQ
Is landed cost the same as DDP?
Closely related but not identical. DDP (Delivered Duty Paid) is an Incoterm that defines who bears the cost — the seller. Landed cost is a price-modelling concept that calculates the total amount your customer pays at delivery, regardless of who legally bears the cost under the Incoterm. You can quote landed cost on a DDP shipment (seller pays) or on a DAP shipment (buyer pays — but they still see the total).
Why is FOB pricing the industry default if it's incomplete?
Three reasons. First, in B2B trade between major exporters and importers, both sides understand the difference and the buyer carries their own brokerage. Second, FOB pricing is portable — the same number quoted to every buyer. Third, the seller doesn't want to register for VAT in every country they ship to, which DDP would require. FOB is the path of least resistance for the seller, even though it shifts complexity onto the buyer.
How accurate does my landed cost estimate need to be?
Within ±5% for budgeting; within ±2% if you're charging the customer landed cost upfront. Customs duty rates are fixed per HS code, so duty is precise; freight quotes are firm-quoted by carriers; insurance is a fixed percentage. The variability is in customs brokerage fees, last-mile delivery, and any unexpected exam fees — these are the line items that blow estimates over.
What to do next
If you’re pricing for a B2C audience, build landed-cost quotes into your checkout. If you’re pricing for B2B, FOB + a separate landed-cost worksheet is fine. Either way, the commercial invoice you generate must match: declared value reflects the chosen Incoterm, freight and insurance are itemised when the Incoterm includes them. Our wizard handles the math automatically. For the duty-rate side of the equation, see How Much Duty Will I Pay; for the Incoterm trade-off, see DDP and FOB.
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