- Landed cost is the total cost of getting goods to your door, not just the supplier’s price.
- Whether your country values goods on a CIF or FOB basis changes how much duty you pay.
- Recoverable import VAT or GST affects cash flow but usually not your final unit cost.
- How you allocate shared costs across products can change their apparent profitability significantly.
A supplier quotes a unit price. Your customer pays a retail price. In between sits a long list of costs that many new importers underestimate: freight, insurance, duty, taxes, broker fees, port charges, inspections, bank fees and local delivery. Landed cost brings them together into one figure per unit. Without it, you cannot price accurately, compare suppliers fairly or know whether you are actually making money.
What goes into landed cost
| Cost group | Typical items |
|---|---|
| Product | Unit price, tooling or mould charges, packaging and labelling changes |
| Origin charges | Inland transport to port, export clearance, origin terminal handling (depending on Incoterm) |
| International freight | Sea, air, courier or rail freight, fuel and other surcharges |
| Insurance | Cargo insurance premium |
| Duties and taxes | Customs duty, excise where applicable, other import levies; import VAT or GST |
| Destination charges | Terminal handling, documentation, storage, container deposit or cleaning fees |
| Clearance | Customs broker fees, permits, regulatory filings |
| Local delivery | Trucking from port or airport to your warehouse, unloading |
| Other | Inspection, testing and certification, bank and currency conversion fees, sample costs spread over the order |
Which of these you pay directly depends on the Incoterm. Under FOB you pay from the ship onwards; under DDP the supplier pays most of them and builds them into the price. See Incoterms 2020 explained for the split.
CIF vs FOB customs valuation
Most duty is charged as a percentage of the customs value of the goods. Under the WTO Customs Valuation Agreement, that value usually starts from the transaction value — the price actually paid. The important difference between countries is whether international freight and insurance are added.
- FOB-based valuation: The United States, Canada and Australia generally value imports without the international freight and insurance to the destination. Duty is calculated on a smaller base.
- CIF-based valuation: The EU, the UK and most other countries generally include the cost of freight and insurance up to the point of entry. Duty is calculated on a larger base.
The details differ by country, and certain costs, such as some royalties or assists, may need to be added in either system. Check your customs authority’s valuation guidance; the WTO publishes background on the international rules.
The base for import VAT or GST
In countries with import VAT or GST, the tax is usually calculated on the customs value plus duty and certain other charges. That means duty itself is taxed. For VAT-registered businesses, import VAT is often recoverable as input tax, so it hurts cash flow rather than margin. If you are not registered, it is a real cost and belongs in your landed cost.
A worked example
The following example is entirely illustrative. The figures are round numbers chosen to show the method; they are not current freight rates, duty rates or fees for any real route or product. A small business imports 2,000 units of a household product from overseas into a country that uses CIF valuation, with an illustrative duty rate of 5% and import VAT of 20%.
| Item | Amount (illustrative) | Notes |
|---|---|---|
| Goods, 2,000 units at 5.00 FOB | 10,000 | Supplier invoice |
| Sea freight to destination port | 1,850 | Forwarder quote |
| Cargo insurance | 150 | Premium |
| Customs value (CIF) | 12,000 | Base for duty |
| Customs duty at 5% | 600 | On CIF value |
| Destination port and handling charges | 400 | |
| Customs broker fee | 200 | |
| Delivery to warehouse | 350 | |
| Pre-shipment inspection | 250 | |
| Bank and transfer fees | 100 | |
| Total landed cost (excl. VAT) | 13,900 | |
| Landed cost per unit | 6.95 | 13,900 ÷ 2,000 |
| Import VAT at 20% on 12,600 | 2,520 | Paid at import; often recoverable if VAT-registered |
Note that the 5.00 factory price has become 6.95 per unit, an increase of nearly 40%, before any warehousing, marketing or selling fees. In an FOB-valuation country, the same illustrative duty rate would apply to 10,000 rather than 12,000, giving duty of 500 instead of 600. To run your own numbers, use the landed cost calculator and the import duty calculator.
Allocating shared costs per unit
When a shipment contains several products, shared costs such as freight, broker fees and port charges must be spread across them. Three common methods:
- By value: each product carries costs in proportion to its invoice value. Simple, and suits costs that are value-driven, such as insurance and bank fees.
- By volume: each product carries costs in proportion to the cubic metres it occupies. Best for sea freight on bulky goods.
- By weight: suits dense cargo or air freight, where chargeable weight drives the bill.
Duty is different: it is calculated per tariff line, so allocate it to the product it belongs to.
Example (illustrative): a shipment contains Product A, worth 6,000 and occupying 4 CBM, and Product B, worth 4,000 and occupying 11 CBM. Shared sea freight is 1,500. Allocated by value, A carries 900 and B carries 600. Allocated by volume, A carries 400 and B carries 1,100. If B is a bulky, low-value item, value-based allocation would make it look far more profitable than it really is. Measure carton volumes with the CBM calculator.
Many importers allocate freight and handling by volume or weight, and insurance, bank and broker fees by value. Pick a method, document it and apply it consistently so you can compare shipments over time.
Pricing from landed cost
Once you know landed cost per unit, set your price based on the margin you need, not a simple markup. To achieve a target gross margin, divide landed cost by one minus the margin. With the illustrative 6.95 landed cost and a 50% target margin, the price is 6.95 ÷ 0.5 = 13.90. A 50% markup, by contrast, would give only 10.43 and a margin of about 33%. Remember to subtract channel costs such as marketplace commissions, payment fees, fulfilment and returns. The profit margin calculator does this quickly.
Freight rates, exchange rates and surcharges move. Add a contingency to your landed cost, and recalculate whenever you receive a new freight quote. You can request a freight quote to keep your figures current.
Frequently asked questions
Is landed cost the same as cost of goods sold?
Landed cost is a major part of cost of goods sold for an importer, but accounting treatments vary. Some businesses also include warehousing or inbound handling in inventory cost. Ask your accountant how to treat these items in your books.
Should I include import VAT in landed cost?
If you are registered for VAT or GST and can recover the import tax, it is usually treated as a cash-flow item rather than a cost. If you cannot recover it, include it in landed cost.
Why does my country add freight to the customs value?
Many countries value goods on a CIF basis, meaning the value at the point of entry, including the cost of getting them there. Others, including the United States, Canada and Australia, generally use an FOB-type basis. It is a policy choice within the international valuation rules.
How accurate does my landed cost estimate need to be?
Accurate enough to make a buying decision with confidence. Use real quotes where possible, add a contingency for variable items and update the figure with actual invoices after each shipment.
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This guide is general education, not legal, tax or customs advice. Rules change and vary by country — confirm details with your customs authority or a licensed broker before you ship. Spotted something out of date? Tell us.