How to calculate landed cost: the formula and a worked example

The formula

Landed cost = product cost + freight + insurance + customs duty + port and clearance charges + inland delivery

Work it up in the order the goods travel, because each step is calculated on the value of the step before it:

• EXW — the ex-works price at the supplier's gate.
• FOB = EXW + export packing + inland transport to the port + export clearance and documents.
• CIF = FOB + international freight + cargo insurance.
• Duty-paid value = CIF + import duty (+ any anti-dumping duty or excise).
• Landed cost = duty-paid value + terminal handling + customs brokerage + inland delivery to your warehouse.

Duty itself is duty rate × customs value. In most countries, including the EU, the customs value is the CIF value. In the United States it is normally the FOB value, so the same shipment carries a smaller duty base.

A worked example: 500 units from Alexandria to Hamburg

Illustrative figures. The landed cost is 26.44 per unit — 32% above the 20.00 supplier price.

That 32% gap is the whole point. Price your product against 26.44, not 20.00. Run your own figures through the landed cost estimator to get the breakdown and the chart, and test a target margin.

What about VAT?

Import VAT is charged at the border in most countries — in the EU on the customs value plus duty plus transport to the destination. It is usually not part of landed cost for a VAT-registered business, because you reclaim it. It is still cash you have to fund at the border.

Duty is different: it is never reclaimable, so it belongs in the landed cost and in any sourcing decision. When you compare suppliers in two countries, the duty difference under a trade agreement is often worth more than the price difference.

The costs importers forget

• Demurrage and detention. Free time at the port runs out fast. A few days' delay in clearance can cost more than the brokerage fee.
• Currency movement. If you buy in dollars and sell in euros, a 5% move erases most of a thin margin. Check the rate with the currency converter before you fix a price.
• Bank charges. Letter of credit issuing, confirmation and amendment fees, plus the cost of the cash being tied up.
• Inspection and certification. Pre-shipment inspection, conformity certificates such as SABER or CE, and testing — see the certification directory.
• The wrong HS code. One digit changes the duty rate, and the error repeats on every unit of every shipment. Check yours in the HS code explorer.
• Damage and shortage. Budget a small allowance; cargo insurance has a deductible and does not cover everything.
• Pallets and re-packing. ISPM 15 treated pallets, and re-palletising if the supplier's pallets are not accepted.

How to use the number

• Compare quotes at the same point. An EXW price and a CIF price are not comparable until you have added the missing legs — see the Incoterms comparison.
• Test the order size. Fixed costs per shipment — brokerage, documents, THC — fall per unit as the order grows. A full container is often cheaper per unit than two part loads; check the fit with the 3D container stuffing calculator.
• Screen markets before you commit. The exporter feasibility simulator compares landed cost against local retail prices across several countries at once.