A factory quote tells you what the goods cost at the factory door. Landed cost tells you what each unit really costs in your warehouse — including freight, duty, handling, inspection and the failure allowance nobody budgets. This article builds the landed-cost model line by line, flags the inputs people get wrong, and reflects the 2026 rules that made duty planning unavoidable for US-bound goods. It is for founders and operators who need to know whether a product actually clears margin before committing to an order.
The formula
Landed cost per unit is the sum of eight lines, and each line has a correct source:
| Line | What it includes | Where the number comes from |
|---|---|---|
| Product cost | Unit price at agreed incoterm (EXW, FOB, DDP differ in what they include) | Supplier quotation against your written spec |
| Inbound freight | Ocean, air or express from factory to destination warehouse | Forwarder quote for your volume weight and lane |
| Duty | Tariff on classified value at destination | HS classification and current duty schedule |
| Taxes and fees | Import VAT or sales tax treatment, MPF/HMF-type fees where applicable | Broker guidance per market |
| Destination handling | Customs entry, devanning, delivery to warehouse, receiving | Broker and warehouse rate cards |
| Quality costs | Inspection fees, testing and certification amortized per unit | Inspector and laboratory quotes |
| Failure allowance | Defects, returns, refusals — as a percentage of the above | Your category's defect and return expectations |
| Payment costs | FX spread and transfer fees on the payables | Your bank's and provider's actual rates |
Two rules keep the model honest. First, every line gets a real quote or a stated percentage — never a guess dressed as a number. Second, the model is per unit but built from the whole shipment: freight divides across units, while duty and inspection scale with them.
Product cost: the incoterm decides what the number includes
Two suppliers quoting "the same" price can be quoting different things. EXW (ex-works) covers the goods at the factory door — everything after is yours. FOB (free on board) adds delivery to the port and export clearance. DDP (delivered duty paid) rolls freight, duty and delivery into one number — convenient, and opaque: you cannot verify any line, and you inherit whatever assumptions the supplier made about classification and taxes. A workable habit: negotiate the product cost on FOB terms so the factory price is comparable across quotes, then build the rest of the model from quotes you control. Our shipping and trade-terms articles cover the DDP/DDU split in detail.
Freight: choose the mode by margin and urgency
Mode selection is a cash-flow decision, not a preference. Typical China–US ranges: express 2–5 days, air freight lines 5–10 days, ocean to the US West Coast 15–25 days and to the East Coast 30–40 days. For China–EU, express runs roughly 3–7 days and ocean 30–40 days, with extra buffer while Red Sea rerouting keeps schedules volatile. Air modes buy speed at a multiple of ocean cost per kilogram; ocean buys cost efficiency at the price of cash tied up in transit plus forecast risk. Many programs blend them: ocean for the replenishment base, air for launch quantities and stockout recovery.
Freight quotes are driven by chargeable weight — the greater of actual and volumetric weight — so a bulky light product can pay air rates on volume it does not weigh. Calculate volumetric weight before comparing quotes, and confirm what surcharges the quote excludes; fuel, peak-season and remote-area surcharges routinely move the final invoice.
Duty and taxes: the 2026 baseline
For US-bound goods, the planning environment changed permanently. The $800 de minimis exemption — which let low-value parcels enter duty-free — was suspended globally on August 29, 2025. CBP rules published on June 24, 2026 moved the suspension to a statutory footing with indefinite effect and introduced new customs processes for postal shipments effective July 24, 2026, and statutory repeal follows on July 1, 2027. The operational consequence: every commercial import from China now carries duty and formal or semi-formal clearance, whatever the parcel size. Business models built on duty-free direct shipping have lost their premise; landed-cost models that ignored duty lines no longer describe reality.
Duty is computed on the classified value at the applicable rate, which makes HS classification a landed-cost input, not an afterthought — a misclassified SKU either overpays silently or underpays into an audit. Classification and its failure modes deserve their own reading; the short version is that the broker's classification should be checked against the product's actual construction, not accepted as a utility bill.
The lines most models forget
- Failure allowance. Even disciplined programs carry defects and returns. Model a percentage — informed by category norms and your inspection regime — applied to the sum of the lines above, because a failed unit consumed freight, duty and handling before it failed.
- Quality costs. Inspection fees and amortized testing are real money on small orders; they shrink per unit as volume grows, which is one reason unit economics improve with scale beyond the unit price itself.
- Payment costs. FX spreads and transfer fees on supplier payments typically cost more than buyers assume, especially when paying in USD from non-USD revenue.
- Receiving and putaway. Warehouse inbound handling is charged, and bulky goods pay it on volume.
- The return trip. For categories with meaningful return rates, add per-unit return processing and write-off expectations. Our fulfillment articles break down returns economics.
An illustrative model
The figures below are a hypothetical illustration of the structure — not a quote. A brand buys 2,000 units at USD 4.00 FOB. Freight (ocean, US West) quotes at USD 1,800, or USD 0.90 per unit. Duty at the classified rate adds roughly USD 0.26 per unit on the FOB value. Destination handling (entry, devanning, delivery, receiving) runs USD 0.22 per unit. Inspection amortizes to USD 0.08, payment costs to USD 0.06. The subtotal is about USD 5.52 — 38% above the factory price. Applying a 4% failure allowance adds roughly USD 0.22, landing near USD 5.74. At a planned retail of USD 24.99, the product clears healthy margin; at a planned retail of USD 12.99, it does not. The point of the exercise: the same quote supports both conclusions, and only the landed model separates them.
A pre-order checklist
- Product cost quoted FOB, against a written specification, from at least two factories.
- Chargeable weight calculated; forwarder quotes for the actual lane and volume.
- HS classification confirmed with the broker for the destination market.
- Duty rate applied to classified value; taxes and entry fees estimated by the broker.
- Inspection and testing quoted; certification costs amortized.
- Failure allowance set by category and inspection regime, not by optimism.
- Payment costs computed at your actual FX spread and fees.
Landed-cost modeling is standard inside every FULVERA sourcing engagement — you receive the model before the deposit decision, not after the goods arrive. To see the model run on your product, submit the brief, or read how our shipping operation prices lanes.
Frequently asked questions
What is the difference between FOB price and landed cost?+
The FOB price covers the goods delivered on board at the origin port, including export clearance. Landed cost adds international freight, duty and taxes, destination handling, quality costs, payment costs and a failure allowance — everything required to turn a factory shipment into sellable inventory. FOB is a supplier number; landed cost is a business number, and pricing decisions should wait for the second one.
How does the end of US de minimis change small orders?+
Before August 2025, shipments under USD 800 could enter the US duty-free, which let small parcels bypass duty entirely. The exemption is now suspended globally, CBP rules effective July 2026 set new clearance processes including for postal shipments, and statutory repeal follows in July 2027. Practical effect: duty and clearance costs apply regardless of shipment size, so low-value direct-from-China models must be repriced with duty included.
What percentage should I add for a failure allowance?+
It depends on category risk and inspection intensity, which is why the model expresses it as a stated percentage rather than a universal constant. Set it from your defect data if you have it, from inspection outcomes on the pilot order if you do not, and revisit it every cycle. A model that carries zero defects is not a model; it is a hope.
Is DDP shipping a good way to simplify landed cost?+
DDP folds freight, duty and delivery into one supplier invoice, which is convenient and opaque at the same time. You cannot verify the duty classification, the freight rate or the handling assumptions inside the number, and suppliers price that uncertainty into it. Workable for occasional small shipments; for recurring volume, keep FOB pricing and build the model yourself with quotes you control.
