When your supplier quotes FOB $8.50 per unit, that is not what you will actually pay. The gap between a FOB quote and your true landed cost routinely runs 20–40% of unit cost, and every margin calculation, retail price, and open-to-buy plan built on FOB alone is overstating profitability by that same margin.
Whether you are a merchandise planner setting cost targets or a buyer negotiating with overseas suppliers, understanding exactly where one price ends and another begins is the difference between an accurate plan and a nasty customs surprise. This guide breaks down all three terms with real numbers, a full worked example, and an interactive calculator you can use on your next buy.
Quick Answer: Three Terms, Three Points in the Supply Chain
Ex-Factory (EXW) is the cost of a product at the factory door: raw materials, labor, overhead, and supplier margin, nothing else. Every cost after that point is the buyer's responsibility.
FOB (Free On Board) adds the cost of getting goods from the factory to the named export port, inland trucking, export customs clearance, port handling, and loading onto the vessel. The seller's responsibility ends the moment goods are loaded.
Landed Cost is the full picture: FOB price plus ocean freight, marine insurance, import duties, customs broker fees, destination port handling, and last-mile delivery to your distribution center. It is the only number that accurately reflects what you paid to own a unit of product.
Ex-Factory Cost (EXW): The Starting Point
Ex-Factory cost, formally called Ex-Works (EXW) under Incoterms 2020, is the price of a product at the manufacturing facility. It includes everything needed to produce and package the item: raw materials, direct labor, factory overhead, and the supplier's profit margin. It does not include anything that happens after the finished goods are ready to leave the factory.
From that point forward, the buyer is responsible for arranging and paying for every step: hiring a truck to the port, clearing export customs, loading the goods onto the vessel, ocean freight, import duties, and final delivery.
When to use EXW pricing: An EXW quote is the purest measure of a supplier's production cost. It is most useful as a negotiation benchmark; ask for both EXW and FOB prices from the same supplier to see exactly what they are building into their logistics markup. If the gap is significantly wider than local market rates for trucking and customs clearance, the supplier is padding.
FOB Cost: The Most Common Quote in Global Trade
FOB, orFree On Board, is the Incoterm you will encounter most often when sourcing from overseas manufacturers. It covers everything in an EXW price plus the cost of getting goods to the named export port, clearing export customs, and loading them onto the vessel. Roughly 70% of China's exports are priced on FOB terms.
The critical detail in any FOB quote is the named port. "FOB Shanghai" and "FOB Ningbo" are different prices for a factory in Yiwu because Shanghai is approximately 100 kilometers further, adding $300–$500 in additional trucking costs per container. The port in the quote tells you exactly where the seller's liability ends and yours begins.
Once goods are loaded onto the vessel, risk and cost transfer completely to the buyer. Ocean freight, marine insurance, destination port fees, import duties, customs clearance, and last-mile delivery are all the buyer's responsibility from that point forward.
A note on "FOB Factory": You may hear suppliers use this phrase informally. It is technically incorrect under Incoterms 2020, which requires a named port (e.g., FOB Ningbo), not a factory location. If a supplier quotes "FOB factory," clarify whether they mean EXW or ask for the proper FOB port name before comparing against other quotes.
What a Real FOB Price Includes: The Nine Cost Components
When a Chinese supplier quotes a FOB price, they are rolling nine cost components into a single per-unit number. Most suppliers will not show you this breakdown, they give you one figure. But understanding what is inside it helps you audit whether the quote is fair and gives you leverage in negotiations.
The first five components make up the product cost: raw materials, direct labor, factory overhead and margin, export packaging, and internal quality inspection. These are the costs that turn into your EXW price.
The final four are the logistics costs that turn an EXW price into an FOB price: inland transport from factory to port, export customs declaration, port handling charges (THC), and loading onto the vessel. For most consumer goods shipped from Yiwu or Guangdong, these four logistics components add $600–$1,000 to a 20-foot container shipment; roughly $0.05–$0.30 per unit depending on order size.
Real Example: 5,000 LED Desk Lamps from Yiwu to Ningbo
The supplier quotes a single line: "FOB Ningbo $6.18/unit." The $350 trucking, $250 customs, and $300 port charges are baked in. You will not see them unless you specifically ask for the EXW price as a cross-check.
Red flag to watch for: If your supplier quotes FOB Ningbo and the implied logistics markup over their EXW price is $800 or more per container, something is wrong. The real market rate for Yiwu–Ningbo trucking in 2026 is $300–$400 for a 20-foot container. Ask for the EXW price and do the math.
Landed Cost: The Only Number That Drives Retail Pricing
Landed cost is the total cost of a product at your receiving dock. It is the only cost number that should drive pricing decisions, margin calculations, and open-to-buy planning, because it is what you actually paid to own the product.
The formula is straightforward, even if the inputs require work to collect:
From FOB to Landed Cost: The Full Calculation
Continuing the LED desk lamp example from above; same 5,000 units, same FOB Ningbo price of $6.18/unit. Here is what the full landed cost looks like for a US buyer importing to Los Angeles:
The FOB price was $6.18 per unit. The landed cost is $7.18 per unit — 16% higher. For products subject to a 25% Section 301 tariff rather than the 8% standard duty in this example, landed cost would jump to approximately $7.60, a 23% gap over FOB.
Every pricing decision, margin target, and open-to-buy budget built on the $6.18 FOB quote is understating true cost by that entire amount.
EXW vs. FOB vs. CIF vs. DDP: Which Quote Should You Use?
These four Incoterms represent a spectrum of responsibility. The more the seller handles, the higher the quoted price because you are paying for their margin on logistics services they are marking up. For the same 5,000-unit order, here is how responsibility and total cost shift across all four terms:
[EMBED: Incoterms Comparison Table]
Note that EXW and FOB result in nearly identical total costs for the buyer; the difference is only who arranges the logistics. CIF is more expensive because the seller marks up freight rates. DDP is the most expensive because the seller charges a premium for managing all duties and last-mile delivery, and you lose visibility into what you are actually paying for each component.
FOB is the right choice for most experienced importers. You get a lower total cost than CIF (because you book your own freight at market rates) and far more transparency than DDP, while the seller still handles the China-side logistics they can manage faster and cheaper than you can from overseas.
Why Retail Planners Need to Think in Landed Cost, Not FOB
Merchandise planners who build from FOB cost are building on an unstable foundation. Consider this scenario: a buying team negotiates FOB from $8.50 down to $7.80; a real 9% win at the factory. But if ocean freight rates climb $400 per container the following month, or a tariff reclassification adds 5% duty to the HS code, the landed cost on those goods can end up higher than if the original $8.50 FOB had been accepted.
The FOB win is real. The landed cost outcome is worse. And if the planning model never tracked landed cost to begin with, no one in the organization sees it coming until the goods arrive.
Tracking landed cost in your planning system, not as a manual spreadsheet exercise but embedded in the item master alongside OTB and margin calculations, gives planning teams the ability to:
- Set accurate retail prices from the moment a buy is confirmed, not after goods clear customs
- Model the margin impact of freight rate changes or tariff shifts before purchase orders are issued
- Compare vendor quotes on a true apples-to-apples basis regardless of which Incoterm each supplier is quoting
- Identify items where cost increases have eroded planned margin before it is too late to adjust assortment or pricing
How to Tell If Your Supplier's FOB Price Is Fair
The most effective audit is simple: request both an EXW price and a FOB price from the same supplier for the same order. The gap between them should roughly equal the actual market cost of inland trucking, export customs clearance, and port charges for that route.
For Yiwu factories exporting through Ningbo, the realistic EXW-to-FOB markup for a 20-foot container is $600–$1,000. For Guangdong factories using Shenzhen or Guangzhou, the range is $500–$900. If the gap is significantly larger than these benchmarks, the supplier is padding their logistics cost.
You can verify independently by getting a spot quote from a freight forwarder for the same inland trucking and export clearance leg, then comparing it to the gap in your supplier's pricing. A $700 forwarder quote against a $1,500 implied markup in the FOB price is $800 in negotiable margin.
Additional red flags to watch:
- Supplier refuses to provide an EXW price alongside FOB
- FOB price changes dramatically when you suggest a different port (should reflect only the trucking cost difference)
- Supplier insists on CIF and discourages FOB — they may be profiting from the freight markup
- FOB price is suspiciously low — may indicate corners cut on materials, packaging, or compliance
Summary: The Difference Between All Three Terms
- Ex-Factory (EXW): The cost of the product at the factory gate, excluding loading, transport, and all associated costs. The buyer arranges and pays for everything from this point forward.
- FOB Cost: EXW plus the cost of getting goods to the named export port — inland trucking, export customs clearance, port handling, and loading. Seller's responsibility ends when goods are on the vessel.
- Landed Cost: The total cost of a product at its final destination. FOB plus ocean freight, marine insurance, import duties, customs broker fees, destination port handling, and last-mile delivery. The only number that should drive retail pricing and margin planning.
Understanding all three terms, and tracking them distinctly in your planning process, is what separates merchandise plans built on real data from ones built on assumptions that unravel at the receiving dock.
