What Actually Belongs in a Landed-Cost Comparison

Nearly every nearshoring pitch I've seen compares a factory-door unit price in Asia to a factory-door unit price in Latin America and calls that the decision. It isn't. A per-unit FOB quote tells you almost nothing about what a unit actually costs by the time it's sitting in your warehouse, available to sell. Get this comparison wrong and you can talk yourself into a move that looks cheaper on a spreadsheet and costs more in cash and working capital within a year.

Here is what belongs in the comparison, and why leaving each piece out is a way to fool yourself.

Unit price (FOB or ex-works)

This is the number everyone starts with, and it's the one number that's easy to get quoted accurately from either side. It's also the least informative number on its own, because it says nothing about how the product gets to you, what it costs to get it through customs, or what it costs to carry the extra weeks of inventory a longer supply chain requires.

Freight — ocean, air, and the difference land makes

Ocean freight from Asia typically runs three to five weeks in transit depending on origin port and destination coast, plus dwell time at both ends. Latin American ocean routes are generally shorter — Caribbean and Gulf origins can reach the US East Coast in under two weeks, and Mexico's Pacific ports typically reach the US West Coast within a week — and Mexico adds a truck/rail option most of the region doesn't have. Shorter transit changes how much inventory you need to hold to cover the same demand, which flows directly into the carrying-cost line below.

Air freight, when used at all, is usually a sign the ocean-freight math didn't work and speed is being bought at a steep premium. Model it only if it's genuinely part of your plan, not as a fallback you're hoping not to need.

Duty and preferential-origin treatment

This is where naive comparisons fall apart. A product may qualify for duty-free treatment under a trade agreement — USMCA for Mexico, the US-Colombia Trade Promotion Agreement for Colombia, CAFTA-DR for Central America and the Dominican Republic — or it may not, depending on where the inputs come from and whether the finished good meets the agreement's specific rule of origin. Apparel is a common trap: a garment sewn in a CAFTA-DR country using Asian fabric can fail the yarn-forward rule and lose the duty preference entirely, even though the sewing happened in the "right" country. Get an actual classification and origin ruling before assuming any duty rate, in either direction.

Insurance, inland transport, and brokerage

Three smaller line items that are each easy to forget individually, and together add up. Cargo insurance scales with shipment value and route risk. Inland trucking on both ends — factory to origin port, and US port or border crossing to your warehouse — varies by corridor and doesn't show up on a factory's FOB quote at all. Customs brokerage is a real, recurring fee on every border-crossing shipment, and it stings more at lower volumes where it isn't diluted across many units.

Financing and inventory carrying cost

This is the line most sourcing comparisons skip entirely, and it's often decisive. A longer supply chain means more cash tied up in transit and safety-stock inventory at any given time. If your cost of capital is meaningful, the carrying cost of, say, ten extra weeks of inventory can outweigh the freight difference between two countries. Nearshoring's real financial case is frequently here — reduced carrying cost and better cash conversion — not in the unit-price line.

MOQ-driven excess inventory

Minimum order quantities matter beyond the obvious cash impact. If a factory's MOQ forces you to buy six months of a slow-moving SKU to get a good unit price, the excess inventory carries a real cost and a real risk of markdown that belongs in the comparison, not just the headline price per unit.

Quality, rework, and travel

Factor in the realistic cost of quality variance during a transfer: sample rounds, first-article inspection, rework or scrap on early production runs, and any travel to inspect a factory floor in person. None of this is optional if you're serious about qualifying a new supplier, and none of it is free.

Why per-unit FOB comparisons mislead

Put together, these categories add real weight on top of a factory-door unit price by the time a unit is actually available to sell. How much depends entirely on your product's value density, duty treatment, and lead time — which is exactly why an industry-average markup would be useless to you and I'm not going to quote one. Run it on your own numbers. Two suppliers with a similar landed-cost total can have very different unit prices if one has faster transit and better duty treatment and the other has a lower quote but longer transit and no duty preference. Comparing unit price alone tells you which factory quoted lower. It does not tell you which one is actually cheaper to buy from.

A worked example (illustrative numbers only, not a real client's figures)

Say you're comparing your current Asian supplier to a hypothetical Latin American supplier for a mid-complexity plastic component, at a volume of 50,000 units per year.

The Asian FOB price is lower by sixty cents, but once freight, duty treatment, and carrying cost are added, the two options land within a few cents of each other. That's not a claim about your product — it's a demonstration of why the unit-price line alone would have pointed you to the wrong conclusion.

What to do with this

Build this table for your actual product, freight lanes, duty classification, and cost of capital. If you can't fill in every row with a real number, that's the gap to close before comparing anything. And if the finished comparison says stay with your current supplier, that's a legitimate result — a landed-cost model that only ever recommends switching isn't measuring anything.