What landed cost is, and why the supplier's price is never it
Landed cost is the total cost of getting one sellable unit from a supplier's loading dock to your own, expressed per unit. It is the only cost figure that belongs in a margin calculation. A supplier quote is a starting point; by the time the goods reach you, you have also paid an ocean carrier, an insurer, a customs authority, a broker, a trucker and a bank.
Seven buckets cover almost every import:
- Goods — the supplier invoice at the agreed Incoterm.
- International freight — ocean or air, plus origin and terminal handling.
- Cargo insurance — usually 0.2%–0.6% of goods plus freight.
- Duty and tariffs — the ad valorem rate for your tariff line, plus any trade-remedy duty stacked on top.
- Customs and brokerage — entry fee, government processing fees, bond, ISF filing, exam and demurrage.
- Inland delivery — drayage, line-haul, and any repacking or labelling needed before the unit is sellable.
- Money costs — the FX spread and wire fees on paying a foreign supplier.
Which of these you pay depends on the Incoterm. Under EXW you pay everything from the factory gate. Under FOB the seller loads the vessel and you own freight onward. Under DDP the seller nominally pays everything — but the cost has not vanished, it is inside the unit price, and you are trusting the seller's duty classification.
The formula, and the two decisions that change the answer
The arithmetic is a sum divided by a quantity. What makes landed cost hard is deciding what goes in the numerator and how you spread shared costs.
Decision one: what is the dutiable value? The rate you look up in a tariff schedule is meaningless until you know what it multiplies. The United States appraises imports on transaction value — the price actually paid for the goods, under 19 U.S.C. §1401a, implementing the WTO Customs Valuation Agreement. International freight and insurance are excluded. The EU, the UK and most Asian authorities apply the rate to the CIF value, so freight and insurance are themselves taxed. On a $10,000 order with $2,000 of freight and $50 of insurance, a 5% rate costs $500 on a US entry and $602.50 on a CIF entry.
Decision two: how do you allocate shared costs? A container rarely holds one SKU, and the allocation basis moves cost between products. Allocate by value for duty and insurance, because that is how they accrue. Allocate by weight or cubic metres for freight, because that is how carriers bill: ocean LCL prices on the greater of tonnes or CBM, and parcel and air price on billable weight, which is why the dimensional weight calculator matters before you finalise cartons. Allocate fixed entry costs by units or evenly per SKU. Splitting everything by unit count is fast and wrong: it makes dense items subsidise bulky ones. This calculator handles a single-SKU shipment exactly; for a mixed container, run it once per SKU with that SKU's share of freight and fees.
Worked example: 2,000 units at $4.20 FOB Ningbo
You import 2,000 units of a housewares item at $4.20 each FOB. Ocean freight and origin charges are $3,200, cargo insurance is quoted at 0.35%, and your broker classifies the item at a 7.5% general duty rate with no additional tariff. Brokerage, MPF, HMF, ISF and the bond total $425. Drayage and line-haul cost $850. Your bank takes 1.5% on the wire.
- Goods. 2,000 × $4.20 = $8,400.00.
- Freight. $3,200.00, already a shipment total.
- Insurance. 0.35% × ($8,400 + $3,200) = 0.0035 × $11,600 = $40.60.
- Dutiable value (US, FOB basis). $8,400.00 — freight and insurance are excluded.
- Duty. 7.5% × $8,400 = $630.00.
- Brokerage and customs fees. $425.00.
- Inland delivery. $850.00.
- Bank and FX. 1.5% × $8,400 = $126.00.
- Total landed cost. $8,400.00 + $3,200.00 + $40.60 + $630.00 + $425.00 + $850.00 + $126.00 = $13,671.60.
- Per unit. $13,671.60 ÷ 2,000 = $6.8358.
Now read the two diagnostics. Landed cost is $13,671.60 ÷ $8,400.00 = 162.8% of the supplier price — high, and the reason is visible: freight alone is $1.60 per unit, 23% of landed cost, more than double the duty. This is a bulky, cheap product paying for volume. Second, the price you need: at a 55% target gross margin, $6.8358 ÷ (1 − 0.55) = $15.19. If your market will not bear $15.19, the fix is a denser carton or a bigger order, not a harder negotiation on the $4.20.
How to read the result: what a normal uplift looks like
The most useful number on the page is not the landed cost — it is landed cost as a percent of supplier price, because it is comparable across products and across quotes. As a working rule of thumb for containerised imports into the United States: 110%–125% means dense, high-value goods where freight is a rounding error; 125%–145% is the normal band for private-label consumer goods at a 3%–8% duty rate; 145%–180% signals bulky or low-value goods, an LCL shipment, or a duty line above 15%; anything over 180% means air freight, a tiny order, or a tariff stack, and deserves a second look at the classification and the Incoterm.
Then read the per-unit split as a diagnosis. If freight per unit is the largest non-goods line, your problem is cubic volume: shrink the retail box, nest the parts, raise units per carton. If duty per unit dominates, your problem is classification or origin — a binding ruling, a different tariff line, or a supplier in a trade-agreement country can move it. If fixed fees such as brokerage and the bond are a big share, your problem is order size: those barely change between 500 units and 5,000. That trade-off against the cost of holding stock is what the economic order quantity calculator settles.
Feed the result into price, not the other way round. The markup vs margin calculator converts between the markup your supplier talks in and the margin your accountant reports.
Reference: typical landed-cost uplift by product profile
| Product profile | Freight | Duty rate | Fees + inland | Landed total | % of FOB |
|---|---|---|---|---|---|
| Dense, high value (hand tools) | $700 | 3.0% | $1,100 | $12,100 | 121% |
| Consumer goods, mid density | $1,600 | 6.5% | $1,275 | $13,525 | 135% |
| Apparel (high duty line) | $900 | 16.0% | $1,275 | $13,775 | 138% |
| Bulky, low value (plastic housewares) | $3,800 | 3.4% | $1,275 | $15,415 | 154% |
| Same goods, LCL half pallet | $1,450 | 3.4% | $1,100 | $12,890 | 129% |
| Air freight, urgent restock | $6,500 | 6.5% | $900 | $18,050 | 181% |
Read the last column, not the freight column. The dense profile and the bulky profile above sit 33 points apart on the same $10,000 of goods, almost entirely because of density.
DDP is not a lower landed cost, it is a hidden one
A DDP quote looks clean: one price, delivered, no customs paperwork. But the importer of record still carries legal responsibility for the accuracy of the entry, and you cannot audit a classification you never see. If a supplier under-declares value or uses a favourable-but-wrong tariff line to make DDP look cheap, liability for the underpaid duty plus penalties can land on you. Ask any DDP supplier for the entry summary, the HTS code used and the declared value; if they will not provide it, price a FOB alternative for comparison.
Mistakes that make a landed cost wrong
- Costing on the supplier price. The original sin. Every margin, break-even and ad-spend decision downstream inherits the error.
- Allocating freight by unit count in a mixed container. Dense SKUs subsidise bulky ones, so you over-price your best products and under-price your worst.
- Applying the duty rate to the CIF value on a US entry. US Customs appraises on transaction value; adding freight first overstates duty.
- Forgetting defects and shrinkage. If 3% of a shipment is unsellable, cost per sellable unit is landed cost ÷ 0.97.
- Leaving out prep. Poly-bagging, labelling and pallet building are landed cost — they are spent before the unit can be sold.
- Using the freight quote instead of the freight invoice. Demurrage, chassis splits, congestion surcharges and exam fees are all billed after the fact, so re-cost the shipment when the freight invoice arrives rather than trusting the quote.
What this calculator assumes, and what it leaves out
It models one SKU on one shipment, with every cost known in your home currency. It assumes all units are sellable, duty is a simple ad valorem rate, and your figures are invoiced amounts rather than quotes.
It does not model specific or compound duties charged per kilogram or per litre; antidumping and countervailing duty deposits, which can run to three figures as a percentage; excise taxes on alcohol, tobacco, fuel and firearms; recoverable import VAT or GST, which is a cash-flow item rather than a cost; drawback refunds; foreign-trade-zone duty deferral; tooling amortisation; or the cost of capital tied up in stock on the water. That last one is real — 40 days of transit on a $250,000 order at a 10% cost of capital is about $2,700, and it belongs in a sourcing decision even though it never reaches cost of goods sold.
For the government charges specifically, the import duty and customs fee calculator computes duty, the Merchandise Processing Fee and the Harbor Maintenance Fee to the cent.
Where landed cost sits in the rest of your numbers
Landed cost is an input, not an answer. Three things consume it.
Pricing. Landed cost per unit is the cost term in every margin formula. Marketplace sellers then subtract referral fees, fulfilment fees and returns before they see contribution — which is what the Amazon FBA profit calculator does, and why a product with a 55% gross margin on landed cost can still lose money on a marketplace.
Accounting. Under both US GAAP (ASC 330) and IFRS (IAS 2), inventory cost includes purchase price, import duties, irrecoverable taxes, and transport and handling directly attributable to acquisition. Most of what this calculator adds up is therefore required to be capitalised into inventory rather than expensed as freight. Booking freight-in as an operating expense leaves your gross margin and your balance sheet both wrong, and understates cost of goods sold until the stock sells.
Planning. Once you know the per-unit cost, the reorder point calculator tells you when to place the next order and the inventory turnover ratio calculator tells you whether you are ordering too much of it.
Key terms
- Incoterms 2020
- The ICC's eleven standard delivery terms (EXW, FCA, FOB, CIF, DAP, DDP and others) that fix where cost and risk pass from seller to buyer. They are contract terms, not tax rules.
- Transaction value
- The primary customs valuation method under the WTO Valuation Agreement: the price actually paid or payable for the goods when sold for export, with specified additions such as assists and royalties.
- CIF value
- Cost, insurance and freight — goods plus international freight and insurance to the destination port. The dutiable base in the EU, UK and most of Asia.
- Importer of record
- The party legally responsible for the accuracy of a customs entry and for paying duties. Usually the buyer, even on a DDP shipment.