Landed Cost, FOB (Free On Board or Freight on Board) Cost, and Ex-Factory Cost are terms used in international trade and supply chain management to describe different aspects of the total cost of a product when it is imported or exported. These terms help businesses and organizations understand and calculate the overall cost involved in moving goods from the manufacturer to the end destination.
Ex-Factory Cost, also known as Ex-Works Cost, refers to the cost of a product at the manufacturing facility or factory. It includes the manufacturing cost, raw materials, labor, and any other production-related expenses incurred until the product is ready for shipment. However, it does not include transportation, insurance, customs duties, taxes, or any other costs associated with moving the product to its final destination. In other words, the buyer is responsible for arranging and covering the costs and logistics of transporting the goods from the factory to their intended destination.
FOB Cost stands for "Free On Board or Freight on Board" cost. It includes the Ex-Factory Cost along with the cost of loading the goods onto the vessel or transportation mode that will carry them to their destination. Once the goods are loaded onto the vessel, the seller's responsibility for the goods ends, and the buyer becomes responsible for the transportation, insurance, and other costs associated with getting the goods to their final destination. FOB terms are often followed by a specific location (e.g., FOB Shanghai), indicating where the seller's responsibility ends and the buyer's responsibility begins.
Landed Cost refers to the total cost of a product after considering all costs associated with getting the product to its final destination. It includes the Ex-Factory Cost, transportation costs (freight, handling, and inland transportation), insurance, customs duties, taxes, tariffs, and other fees incurred during the import/export process. Landed Cost provides a comprehensive view of the actual cost a buyer will incur to receive the product at their location. Calculating the landed cost is crucial for businesses to accurately price their products and determine profitability.
- Ex-Factory Cost: The cost of the product at the factory, excluding any transportation or associated costs.
- FOB Cost: The Ex-Factory Cost plus the cost of loading the goods onto the transportation mode, with the buyer responsible for further transportation and associated expenses.
- Landed Cost: The total cost of the product, including Ex-Factory Cost, transportation, insurance, customs duties, taxes, and other expenses necessary to deliver the product to its final destination.
Understanding these terms is important for businesses engaged in international trade to make informed decisions about pricing, logistics, and profitability.