Two importers bring in the same goods at the same declared value under the same duty rate, and pay different amounts of duty. Neither has done anything wrong. They are being assessed on different bases, and the basis is decided before the rate ever enters the calculation.
The two bases
An ad valorem duty is a percentage, and the question is a percentage of what.
On an FOB basis the rate applies to the customs value alone. On a CIF basis it applies to the customs value plus freight and insurance. Take a shipment with a customs value of 10000, freight of 1500 and insurance of 500, at a rate of 0.25.
FOB duty is 2500. CIF duty is 3000.
Same goods, same declared value, same rate, and a 500 difference in duty. Carriage was 2000 of the 12000 dutiable base under CIF, and 0.25 of that 2000 is the entire gap.
The gap scales with carriage, not with value
That matters most for goods that are cheap relative to what it costs to move them.
Take a customs value of 5000 with freight of 2500 and insurance of 500 at the same 0.25. FOB duty is 1250; CIF duty is 2000. Carriage is now 3000 against a 5000 value, so the CIF base is 60 percent larger than the FOB base and the duty is 60 percent higher.
Run the same numbers on a shipment where carriage is small relative to value and the two bases converge. At a customs value of 50000 with the same 1500 freight and 500 insurance, FOB duty is 12500 and CIF duty is 13000 — a four percent difference rather than sixty.
So the basis question is not a technicality that matters equally everywhere. It is nearly irrelevant on dense high-value goods and decisive on bulky low-value ones.
The effective rate is never the headline rate
The second thing that surprises people is that the rate they were quoted is not the rate they pay against their landed cost.
On that first shipment, duty of 2500 sits inside a landed total of 14700 once freight, insurance, duty and 200 of fees are added. Duty as a fraction of landed cost is 0.170068, not 0.25.
That is arithmetic, not a discount. The rate applies to the customs value while the denominator you care about for margin includes carriage and fees, so the effective figure is necessarily lower. At a rate of 0.10 the effective rate on the same shipment shape is 0.075758; at 0.025 it is 0.02008.
The practical consequence is that quoting duty as a percentage of landed cost understates the tariff, and quoting the headline rate overstates what it does to your margin. Both numbers are correct and they answer different questions.
Where carriage does not enter at all
If freight and insurance are zero, the two bases give the same answer. On a 10000 customs value at 0.25 with no carriage and no fees, FOB and CIF duty are both 2500 and the landed total is 12500, so the effective rate is exactly 0.2.
That is the only case where the effective rate approaches the headline rate, and it is why examples built without carriage are misleading about the general case.
What this does not tell you
Which rate applies to a given good is a question of tariff classification and of trade measures in force on the day of entry, and both change by proclamation. Every rate above is an input chosen to show the mechanics, not a claim about any product. Establish your classification and your valuation basis first; the arithmetic above only tells you what follows once you have them.
For working a specific shipment through both bases, USTariffCalc on same goods same rate does it side by side.