Top 5 FOB vs LDP Mistakes That Could Destroy Your Clothing Business
When I first started my clothing brand, I knew nothing about FOB and LDP manufacturing terms. I just found a factory willing to produce my initial samples, assuming all production would be the same. Boy was I wrong! Those early missteps nearly bankrupted my business before it ever launched.
Choosing between FOB (Free on Board) and LDP (Landed Duty Paid) is one of the most crucial decisions when manufacturing apparel overseas. Selecting the wrong approach or managing it poorly can set your business back years. Believe me, I learned this the hard way.
If you want to avoid common pitfalls when using FOB or LDP, keep reading. I’ll outline the top mistakes that could seriously hurt (or outright destroy) your clothing brand, and how to steer clear of them.
Mistake #1: Not Understanding the Core Difference Between FOB vs LDP
This seems basic, but really grasping the central distinction between FOB and LDP is critical.
With FOB, you only pay the factory for production costs. With LDP, you pay the factory a single lump sum that covers manufacturing and all delivery costs to your door.
For example, let’s say a factory’s production costs are $10 per unit. With FOB, you simply pay $10 per product manufactured.
With LDP, the factory will also bundle in estimated shipping, duties and delivery fees. So you might pay $15 per unit - $10 for production, and $5 for logistics.
Why It Matters
Not understanding this key nuance has big implications for budgeting and cash flow. With LDP I just pay one predictable lump cost per order - easy peasy.
With FOB, I have to separately budget for potentially massive shipping and import costs that hit weeks or months after paying the factory their production fees.
If I underestimate these variable logistics costs, it can mean spending way more than I budgeted and running out of cash. Ouch!
Mistake #2: Choosing FOB When LDP Would Be More Suitable
As a startup clothing brand, I assumed going with an FOB manufacturing model would save money. After all, I wasn’t paying markups for the manufacturer to handle logistics, right?
Wrong. By choosing FOB before we were ready, it was an absolute nightmare. Constant delays, customs issues, and getting gouged on duty fees I didn’t anticipate.
Should Have Started With LDP First
In hindsight, starting out with an LDP arrangement would have saved me countless headaches. The simplicity and predictability of one lump cost per order was worth paying slightly higher per unit prices.
LDP is ideal when you’re small and producing limited volumes. The manufacturer assumes all the risk and logistics responsibilities you likely don’t have the capacity for as a new business.
Once you reach large order volumes, have shipping and imports dialed in, and want to squeeze every cent of savings, transitioning to an FOB model can make sense. But don’t rush into it.
Mistake #3: Choosing LDP When FOB Would Save Big Money
On the flip side, I have friends who stuck with LDP too long out of fear of managing FOB logistics. That choice cost them dearly.
Once you start producing thousands of units per style, the economics flip - FOB gives you far lower per unit costs.
LDP Markups Get Cost Prohibitive
Let’s say an LDP factory charges $2 per unit more than FOB to cover shipping and duties. No big deal on small orders.
But if you sell 20,000 units a year of a style, that’s $40,000 in extra costs! At higher volumes, those LDP logistics markups add up fast.
The inflection point will vary, but once you reach large production runs transitioning to an FOB model is crucial to lower costs. The work of managing logistics yourself will pay dividends.
Mistake #4: Not Vetting an FOB Factory and Assuming Quality
Eager to rush my first production run, I picked an FOB factory based solely on some email exchanges and the lowest bid. Huge blunder.
Just because a factory claims they can meet your specs and quality standards doesn't mean they actually will.
Visit Your Factory Personally
I learned the hard way to vet FOB factories extensively upfront. Get client references, review examples of past work, visit the facility in person.
Watching your first samples come off the line, inspecting seams and fabrics with your own eyes lets you spot issues early.
Don’t assume an overseas factory will perfectly execute on your designs and quality without oversight. Leaving quality control solely to them puts your brand at risk.
Mistake #5: Underestimating Logistics Management for Both FOB and LDP
With LDP, the simplicity of bundled delivery costs caused me to underestimate potential headaches.
Delays from port slowdowns, trucker shortages or other factors outside your control can wreak havoc on supply chain timelines. Leave ample buffer in your lead times, and keep close tabs on manufacturing progress.
With FOB, you shoulders the risks directly - that makes diligent logistics planning and budgeting even more crucial. Get quotes from multiple carriers. Build contingencies into your timelines and budgets for hiccups.
The Shipping Game is Always Changing
Just as you feel like your importing process is dialed in, some new disruption emerges - like volatile fuel costs or labor strikes. Always have a Plan B and room for flexibility.
In our fast-paced industry, supply chain chaos is inevitable. Don’t let it catch you off guard and sink your clothing brand.
Conclusion
Mistakes with FOB and LDP manufacturing can be costly. But now that you know the pitfalls to avoid, you can confidently navigate these choices to power your clothing brand’s growth. Streamline production with the model that fits your business needs. Just please learn from my early failures!
FAQ's
Should I use the same factory for FOB and LDP orders?
It's generally advisable to use separate factories for FOB vs LDP production. Factories focused on FOB are optimized for high efficiency and low production costs, while LDP factories specialize in turnkey delivery.
Can I negotiate better rates if I commit to large LDP orders?
Yes! LDP factories will often discount per unit costs for large or ongoing production runs. Committing to steady monthly orders can earn you the best long-term LDP pricing.
Should I get quotes from multiple FOB factories?
Absolutely. Prices and production capacity can vary widely between FOB factories. Get multiple quotes for the same styles to compare on total costs, production time, and minimums.
How much extra inventory should I order using FOB to account for shipping delays?
It's smart to overestimate your lead times by 2-3 weeks when ordering via FOB. This extra buffer allows you to be prepared in case of port congestion, customs clearance delays, or other unpredictable issues.
