Why does landed cost matter?
A supplier’s unit price is only the starting point. Freight, duty, and local fees can add 20% to 40% or more, and the increase varies by product and route. Two suppliers with different unit prices can swap places once every cost is counted.
What is included in landed cost?
- Product cost: the price paid to the supplier, often quoted FOB or EXW.
- International freight: sea, air, or road, including origin charges.
- Cargo insurance.
- Customs duty: based on the HS code and customs value.
- Import taxes: VAT or GST, if not recoverable.
- Clearance and broker fees.
- Port and terminal charges.
- Inland delivery to your warehouse.
What is the landed cost formula?
Landed cost = product cost + freight + insurance + duty + non-recoverable taxes + fees
Landed cost per unit = landed cost ÷ units received. Duty is usually charged on the customs value, which in many countries is the CIF value (product + freight + insurance). Some countries use FOB value, so check local rules.
Worked example
You import 1,000 units at $8.00 each. The figures below are illustrative.
| Cost item | Amount |
|---|---|
| Product cost (1,000 × $8.00) | $8,000 |
| Ocean freight | $900 |
| Insurance (0.5% of product cost) | $40 |
| Customs value (CIF) | $8,940 |
| Duty at 10% of customs value | $894 |
| Clearance and broker fees | $150 |
| Port and terminal charges | $180 |
| Inland delivery | $250 |
| Total landed cost | $10,414 |
| Landed cost per unit | $10.41 |
The true cost is about 30% higher than the $8.00 sticker price. VAT is excluded here because we assume it is recoverable.
How do you use landed cost to set prices?
Work backwards from landed cost per unit. To earn a 40% gross margin on the $10.41 unit above, divide by 0.60: 10.41 ÷ 0.60 = $17.35. If you priced from the $8.00 quote instead, a $13.33 price would give the same apparent margin but deliver an actual margin of only about 22%.
How do you compare suppliers with landed cost?
Supplier A quotes $8.00 per unit. Supplier B quotes $8.60 but ships from a nearer origin with lower freight and qualifies for zero duty. Compare per-unit landed costs:
| Cost item | Supplier A | Supplier B |
|---|---|---|
| Product cost | $8,000 | $8,600 |
| Freight and insurance | $940 | $543 |
| Duty | $894 | $0 |
| Fees and delivery | $580 | $580 |
| Landed cost per unit | $10.41 | $9.72 |
Supplier B costs more on paper but less once everything is counted.
How do Incoterms change your landed cost?
The Incoterm decides which costs are already in the supplier’s price. With EXW you add origin charges and all freight yourself. With FOB you add ocean freight and destination costs. With CIF, freight and minimum insurance are included, but duty and destination charges remain yours. Always confirm which costs each quote includes.
Which costs do importers often forget?
- Bank, payment, and currency conversion fees.
- Inspection, testing, or certification costs.
- Storage, detention, and demurrage from delays.
- Labelling, repacking, or compliance changes.
- An allowance for damaged or unsellable units.
How can you keep landed cost estimates accurate?
- Ask for itemised quotes and confirm the Incoterm.
- Verify the HS code and duty rate before ordering.
- Convert all costs to one currency at a realistic exchange rate.
- Add a 5% to 10% buffer for delays and surcharges.
- Compare estimates against actual invoices and update your model.
Key takeaway: Landed cost is the real price of an imported product. Price and reorder from it, not from the supplier’s quote.
FAQ
Is landed cost the same as cost of goods sold? No. Landed cost sets the value of your inventory. Cost of goods sold records that cost when the product is sold.
Should VAT be included in landed cost? Only if you cannot reclaim it. Recoverable VAT is normally excluded.
How often should I update my landed cost? Recalculate for every shipment, and review your model whenever freight rates, duty rates, or exchange rates change.
Can I use landed cost for air freight? Yes. The formula is identical. Air freight costs more per kilogram but is faster, so weigh it against inventory holding costs.
How do I split freight across different products? Allocate by weight, volume, or value, and apply the same method consistently.
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