Tariffs and landed cost

The invoice price, freight to port, ocean or air freight, insurance, duty, customs brokerage, drayage, and the cost of holding goods in transit. For apparel, duty is a substantial component and varies sharply by construction, fiber content and category, which makes classification consequential.

Two garments that look identical can carry different duty rates because of their fiber blend or how they are knitted, which is why classification is a discipline rather than a formality.

Duty is assessed on a tariff code, and a code is assigned from the physical characteristics of the item. Getting it wrong in one direction creates liability and penalties; getting it wrong in the other means overpaying, sometimes for years. Importers with volume treat classification as an ongoing review rather than a one-time decision at first import.

The incoterm decides who is responsible for all of this, which is the subject of FOB, DDP and transit risk.

A duty increase lands on goods already committed, because apparel is ordered months ahead. Retailers absorb it, pass it through, or re-source, and the first of those shows up as a gross margin decline in the quarter the goods sell. That is why tariff commentary and margin commentary tend to appear together in earnings calls, and why a margin movement should never be read as a single-cause event, as in the margin analysis.