How to Calculate the Landed Cost of

Imported Products
 Ben Thompson
 May 12, 2020

Share on facebook
Share on twitter
Share on linkedin

Get started with IncoDocs

Businesses that are involved in Global Trade are faced with dozens of additional costs, fees and
charges involved with importing products through to the final location.  It’s imperative that
buyers understand the actual final costs of imported products in advance, to make smart
decisions for their business.

What is a landed cost?

A ‘landed cost’ is the term used when referring to the final cost of products plus all associated
shipping and logistics costs required to get the goods delivered through to a final location. 
Throughout the global trade process there can be dozens of additional charges, fees and currency
conversions that buyers must be aware of in advance so that the landed cost of the products can
be calculated.

Some of the import costs include the cost of the products, currency conversion costs,
international freight & logistics charges, import charges, port charges, customs clearance fees,
import duties & taxes and local delivery, to name a few.

Why is a landed cost calculation important?

Businesses must have a good understanding of what the landed cost of imported products will be
in advance so that they can make smart decisions for their business.  If a business is planning to
import products and on-sell them in their market, then they must have a good idea of what the
actual final landed cost is for each item.

Understanding the landed cost of imported products allows business to plan how much capital
will have to be invested to purchase products and get them delivered through to location.  On top
of that, it also helps businesses to plan their sell prices and profit figures that will eventuate when
the products are sold.

If businesses do not take the time to understand their landed cost, they could be faced with
unexpected fees and charges which could make importing the products unviable.  Calculating the
landed cost requires an understanding of some key costs and correctly applying them to each
product to get the final landed cost per item.
Download Landed Cost Template

How to calculate the landed cost of imported products.

Firstly, it’s important to understand all of the different costs, fees and charges involved
throughout the purchasing and importing process.  Below is a list of information that you will
need to know to accurately calculate the landed cost of imported products.

Step 1: Receive a detailed quotation from the exporter.  The quotation will
include the following details:

 Shipper & Consignee’s details

 Incoterm® & Place
 Port of Loading (POL) & Port of Discharge (POD)
 Currency (most commonly USD)
 Product details and pricing
 Product HS/HTS Codes
 Product and packaging sizes
 Shipment type (by Full Container – FCL, or Less-than-Container-Load LCL Cargo).

Step 2: Understand the International freight and additional import costs.

You can contact a freight forwarder to get a confirmed quotation to get products shipped through
to your location.  Most global trade shipments are sold on the FOB Incoterm® (Free-On-Board)
which means that the consignee (buyer) will pay for all additional costs and charges after the
goods have been loaded on board the vessel for export. 

A freight forwarder’s quote will usually be itemized to show all of the fees involved. This
includes:
  International Seafreight from Port of Loading to Port of Discharge (usually in USD)
– Note seafreight and airfreight rates vary throughout the year so you will have to
confirm the validity date.
 Local charges in the country of import (get these costs in your local currency) –
These include local port handling costs, documentation, customs clearance, quarantine,
marine transit insurance, domestic trucking etc.
 Local Import Duty Rates – If you supply the HS Code for the goods to import, the
freight forwarder or customs broker can confirm what rate of duties will be applied to the
imported goods. Also, confirm how the import duty is charged on your product. This
process varies from country to country so get confirmation for your situation.
 Import Taxes – Understand the local tax rate (VAT/GST) and how it is applied to
imported goods.

Step 3: Understand the actual foreign currency exchange rates and costs.

There are plenty of options to make foreign exchange payments to International suppliers.  You
must clearly understand the actual exchange rate that your Currency Exchange provider can offer
you.  Note that the exchange rate that you secure will be less than the current interbank rate.

Read more about SWIFT Telegraphic Transfers (T/T) and other International payment methods.

An Example of how to Calculate the Landed Cost of

Imported Products
Let’s look at a basic example of a shipment of a 20’ container of goods from China.  A supplier
has quoted:

 100pcs of furniture items – $100 USD per piece

 Incoterm® – FOB, Shanghai Port
 Total FOB Cost – $10,000 USD
 Shipment Type – 20′ GP Container
 HS Code – 1234.56

Step 1: Convert all foreign currencies into your local currency (taking into account your actual
exchange rates that will be secured when making International T/T payments).  You will most
likely have to convert the supplier’s USD costs and the International Seafreight charges into
your local currency.  When you have converted all foreign currencies into your local currency,
add all of the costs together.

 Product FOB $10,000USD = $13,000 in your local currency

 Seafreight $2000USD = $2600 in your local currency
 TOTAL Product + Seafreight = $15,600 local currency

Step 2: Add all local import costs and charges from the freight forwarder, in this example $1500:
  ADD $1500 (in your local currency)

Step 3 – Calculate Import Duty Charges

NOTE: Import duty and import tax rates vary from country to country.  There are 2 main
valuation methods that countries use to charge import duties and taxes, on either the FOB or
CIF value of the goods.

FOB: The Import duty is charged on the “Free On Board” value of the products. i.e. duty is
charged on the FOB value of goods (on the currency of the importing country).

CIF: The Import duty is charged on the “Cost, Insurance and Freight” value of the products. So
duty will be charged on the cost of the products + cost of insurance (if any) + cost of
International transport through to the port of discharge (on the currency of the importing
country).

In this example, the freight forwarder has confirmed that a 5% import duty rate will apply to the
FOB value of imported goods (local currency).  So 5% import duty will be charged on $13,000
($650):

 ADD $650 in import duty charges

Step 4:  Add import taxes.  In this example 10% import tax is charged on the final value of
imported goods (final value $17,750):

 ADD $1775 import taxes

So the final landed cost of goods imported into country:

 FOB $13,000
 + Seafreight $2600
 + All local import costs $1500
 + 5% import duty $650

Total Landed Cost = $17,750 + 10% Tax of $1775

Split up the additional charges to calculate the landed cost

per product.
If you are looking to import multiple items inside 1 shipment, you will have to calculate the
landed cost per product.  You can split up all of the additional costs by cubic volume (m3), or
by weight, usually whatever is greater.

To do this you will need to accurately understand the packaging sizes and weight of each product
and split up the costs per product.  The easiest way to do this is to calculate the cubic
measurement (m3) per product or weight (kg) per product.  The total of the International freight
costs + local import costs ($15,600 in the above example) can then be split up by the cubic
measurement or weight (whatever is greater).

How to apply markup and margin to calculate sell pricing.

When the landed cost of the products has been calculated, businesses can work out their sell
pricing, i.e. how much these products can be sold for in the market.  This will give businesses a
good understanding of the profit that can be made and gives an insight into the return on
investment (ROI) if they were to import and on-sell the products.

To work out sell pricing, importers can apply a markup or margin percentage to the cost price. 
It’s important to note that markup and margin are 2 completely different methods of calculations
which must not get confused.  Read more about Markup Vs Margin here.

How to use a Landed Cost calculator to work out landed

costs and sell pricing.
Calculating the landed cost per item can be a long, time consuming process.  On top of that, if
you make any mistakes in the calculations then your projections could be well under or over the
actual charges.

To support importers and exporters during the landed cost process, our team created a simple to
use Landed Cost Excel Calculator. This landed cost calculator allows buyers and sellers to:

 Calculate landed costs broken down per product

 Calculate landed costs by Cubic Volume (m3), or weight
 Add markup or margin to each product to calculate sell pricing and profit figures

How to place orders with International suppliers

Once businesses understand the landed cost of the products to be be imported, they can decide to
place a new order.  Importers can place new orders with International suppliers by sending an
official Purchase Order document.  Read more on how Purchase Order and Proforma Invoices
work here.
Download Landed Cost Template

Exporters and Importers use IncoDocs to create compliant Export

Documentation

Creating multiple documents is a vital part of shipping products Internationally. Shippers must
ensure that they provide compliant documentation that contains all relevant shipping & customs
information to ensure smooth shipments and avoid any costly delays.

Watch how IncoDocs users create Quotations, Invoices and Purchase Orders. Then when the
goods have been shipped, create detailed export documentation including Commercial Invoices,
Packing Lists, Declarations & more so that the shipment can be delivered Internationally.

With IncoDocs’ set of read to go export document templates, you can quickly generate any of the
export documentation required in just a few clicks.  Save your contacts, products and other
information to insert into documents in 1 click, and eliminate manual data re-entry.

IncoDocs allows shippers to upgrade their manual processes and provides real insight into the
export process.  A shared team workspace will allow your team to thrive while working
remotely.  Try it yourself and see how it can improve your shipping operations.