From Factory Price to Landed Cost

A factory's EXW or FOB quotation is only the starting point for evaluating commercial viability. Landed cost — the true cost of a unit delivered and cleared in Sri Lanka — also includes international freight, insurance, import duties, applicable levies, VAT, customs clearance fees, port charges and local transport. Only once landed cost per unit is known can gross margin, wholesale margin and break-even order quantity be calculated with any real confidence.

What's Included in an EXW or FOB Quote

An EXW (Ex Works) quote covers only the cost of the product made available at the factory gate — the buyer is responsible for everything from that point onward, including inland transport to the port. An FOB (Free On Board) quote extends slightly further, covering cost up to the point the goods are loaded onto the vessel at the origin port. Neither includes international freight, insurance, import duty, Sri Lankan-side taxes, or any cost incurred after the goods leave Thailand. Comparing supplier quotes on EXW or FOB price alone, without adjusting for these gaps, is one of the most common sourcing mistakes.

The Landed Cost Components Factories Never Quote

• International freight. Sea or air freight cost from the Thai port or airport to the Sri Lankan port of entry, which varies by mode, volume and current market rates.
• Marine or cargo insurance. Typically a small percentage of shipment value, but a genuine cost that should be included, not assumed away.
• Import duty. The applicable tariff rate, which depends on the product's HS classification and whether SLTFTA preferential treatment genuinely applies — this should be confirmed, not estimated.
• VAT and other applicable local taxes or levies. Sri Lankan import taxation on the landed value, which should be modelled using current, verified rates rather than assumptions carried over from a previous shipment or a different product category.
• Customs clearance and port charges. Brokerage fees, port handling, and documentation-related charges incurred at the point of import.
• Local transport. Cost of moving cleared goods from the port to a warehouse or distribution point within Sri Lanka.

A Simple Landed Cost Framework

At a structural level, landed cost per unit equals: factory price per unit, plus inland transport to origin port (if not already included in the quote), plus international freight and insurance allocated per unit, plus import duty calculated on the applicable customs value, plus VAT and other local taxes, plus clearance and port charges allocated per unit, plus local transport to final destination allocated per unit. Each of these should be calculated using current, verified figures for the specific product and shipment — not carried over from a different product, supplier or time period, since duty treatment, freight rates and applicable levies can all change.

Who Should Own the Landed Cost Calculation

In practice, landed cost modelling is often split unclearly between a buyer's procurement function and their finance or freight-forwarding partner, with no single person responsible for keeping the full model current. This tends to produce exactly the stale-assumption problem described above — freight or duty figures get updated in one part of the business but not communicated to whoever is setting retail or wholesale pricing. Assigning clear ownership of the landed cost model, even in a small business, and requiring it to be reviewed before any new pricing decision, closes this gap and tends to surface pricing errors while they are still easy to correct, rather than after a season of underpriced stock has already sold through.

Why This Changes the Sourcing Decision

Two manufacturers with identical FOB quotes can produce meaningfully different landed costs once freight terms, packaging density (which affects shipping volume and cost), and duty treatment are factored in. A manufacturer offering a marginally higher FOB price but genuine SLTFTA-eligible documentation, or more efficient packaging that reduces freight cost per unit, can easily land cheaper overall than a nominally lower-priced competitor. Comparing suppliers on landed cost, not factory price, is what actually determines which quote is commercially better.

How Landed Cost Determines Wholesale Margin and Break-Even

Once landed cost per unit is known, it becomes possible to model wholesale and retail pricing with actual margin visibility, and to calculate the minimum order quantity required to reach break-even once fixed costs — such as import documentation, initial marketing, or minimum freight charges for a container — are factored in. Pricing decisions made on factory price alone routinely overstate margin, sometimes significantly, because they omit a third or more of the true cost stack.

Common Mistakes When Estimating Landed Cost

• Comparing supplier quotes on factory price without normalising for Incoterm differences (EXW vs FOB vs CIF).
• Assuming a previous shipment's freight rate or duty treatment still applies to a new product or time period.
• Omitting smaller line items — clearance fees, port charges, local transport — that individually seem minor but collectively affect margin meaningfully.
• Assuming SLTFTA preferential duty treatment applies without confirming HS classification and origin documentation for the specific product.

Incoterms: EXW, FOB, CIF and DDP Explained

Incoterms determine which of the landed cost components above are already included in a factory's quoted price, and which the buyer must add separately — so understanding them precisely is a prerequisite to building an accurate landed cost model. EXW (Ex Works) means the quote covers only the product at the factory gate; the buyer arranges and pays for inland transport, export clearance, freight, insurance, import duty, and everything else. FOB (Free On Board) shifts responsibility to the manufacturer up to loading the goods onto the vessel at the origin port, after which the buyer takes over. CIF (Cost, Insurance and Freight) has the manufacturer also arrange and pay for international freight and insurance to the destination port, leaving the buyer responsible mainly for import duty, clearance and local transport from that point. DDP (Delivered Duty Paid) shifts almost everything to the manufacturer, including import duty — though DDP arrangements are less common for Thailand-to-Sri Lanka trade and should be verified carefully, since the manufacturer's familiarity with Sri Lankan import requirements directly affects how reliably they can execute this.

Building a Landed Cost Spreadsheet You Can Reuse

A simple, reusable landed cost spreadsheet — with a line for each component described above, and space to note the source and date of each figure — pays for itself quickly once a business is sourcing more than a single product. Recording where each number came from (a specific freight quote, a confirmed duty rate, a broker's clearance-fee estimate) makes it far easier to spot when a figure is out of date and needs rechecking, rather than being carried forward indefinitely from an earlier calculation. Over time, this also builds an internal reference for how landed cost typically breaks down by product category and freight mode, which speeds up evaluating new sourcing opportunities.

How Siam Chaiya Approaches Landed Cost Modelling

Siam Chaiya builds landed cost modelling into the sourcing and market-entry process from the outset, so pricing and margin decisions are based on verified, product-specific figures rather than factory price alone — helping Sri Lankan buyers and Thai manufacturers agree commercial terms that reflect the real economics of bringing a product to the Sri Lankan market. This includes helping buyers normalise quotes across different Incoterms and manufacturers, so a sourcing decision is made on a genuinely comparable, landed-cost basis rather than on factory price figures that are not actually measuring the same thing.