Financial Defense
Sourcing agreements between apparel brands and overseas factories include financial provisions to shield the buyer from unexpected import charges and freight hikes. Utilizing landed cost protection ensures that the unit price paid by the brand covers all duties, clearing fees, and local transport to the distribution center. This prevents budget overruns caused by sudden rises in ocean shipping rates or customs tariffs.
Contract Clause
The commercial agreement defines the division of liability using specific incoterms, such as Delivered Duty Paid. Under these terms, the garment manufacturer bears the risk of transport delays and tariff changes during transit. If a customs department imposes a higher rate, the factory must absorb the cost under the agreed contract.
Risk Mitigation
Apparel brands use this contractual tool when importing garments from regions with unstable shipping lanes or volatile trade policies. Securing fixed prices allows the retail business to maintain stable margins on seasonal clothing lines. This protection is especially valuable for high-volume items with low profit margins.
Sourcing Threshold
Factories often charge a higher initial unit price to cover the risk of absorbing these unpredictable transport expenses. For this reason, landed cost protection is less suitable for closeout orders or short-run fashion items where the buyer can negotiate lower spot freight rates directly. Sourcing managers must balance the premium paid for cost stability against the likelihood of logistics disruptions.