Landed cost is the total cost of getting a product to your door, ready to use or sell: what you pay the supplier plus freight, insurance, customs duties, customs fees, brokerage, port and handling charges, and delivery to your warehouse. To calculate it, add every shipment cost, assign each cost to the products on the shipment, and divide by the units of each product.
Landed cost = product cost + freight + insurance + duties and import taxes + customs fees and brokerage + port, handling and inland delivery charges
Landed cost per unit = (product cost of the SKU + its share of shipment costs + its own duty) ÷ units of that SKU
Below is a full worked import example with the arithmetic, how to split shipment costs across several SKUs, what each Incoterm leaves you to add, and how to use landed cost to compare an overseas quote with a domestic one.
The Components of Landed Cost
| Component | What it covers | How it is usually calculated | Who quotes it |
|---|---|---|---|
| Product cost | Supplier's price at the agreed Incoterm | Unit price × quantity, converted to your currency | Supplier |
| Origin charges | Export clearance, pickup, origin terminal handling | Flat fees per shipment (often already in an FOB price) | Supplier or forwarder |
| Main freight | Ocean (FCL or LCL), air, rail or truck | Per container, per cubic meter, or per kg of chargeable weight | Freight forwarder or carrier |
| Insurance | Cargo cover for loss or damage in transit | Rate × insured value, commonly 110% of goods plus freight | Insurer or forwarder |
| Duties | Import duty on the goods | Customs value × duty rate for the tariff code, plus any extra duties for that country of origin | Your country's tariff schedule; confirm with a customs broker |
| Customs fees and taxes | Government processing fees, excise, non-recoverable import taxes | Percentage of value or flat fee per entry | Customs broker |
| Brokerage | Customs entry, filings, bond | Flat fee per entry plus per-line charges | Customs broker |
| Destination charges | Terminal handling, container fees, demurrage and detention if late | Flat fees, plus per-day charges after free time | Forwarder, terminal |
| Inland delivery | Drayage or trucking from port to your site | Per trip or per load | Trucker or forwarder |
| Receiving | Unloading, inspection, relabeling | Labor hours × rate | Your warehouse |
| Payment costs | Wire fees, currency conversion spread, letter of credit fees | Flat fees plus a percentage on conversion | Your bank |
Import VAT or GST that your business can reclaim is not part of landed cost, but it still ties up cash until you recover it. If you cannot reclaim it, include it. In the US there is no import VAT, but there is a merchandise processing fee on most formal entries and a harbor maintenance fee on ocean shipments.
Worked Example: Landed Cost of an Ocean Import
Example (illustrative): a US company imports two products from an overseas supplier in one 40-foot container, quoted FOB the origin port in US dollars. All rates and fees below are assumptions for the example. Get real ones from your forwarder, insurer and customs broker.
| SKU | Units | FOB unit price | FOB value | Volume | Duty rate (assumed) |
|---|---|---|---|---|---|
| A: metal brackets | 4,000 | $12.00 | $48,000 | 32 CBM | 4.0% |
| B: plastic housings | 10,000 | $2.40 | $24,000 | 20 CBM | 6.5% |
| Total | 14,000 | $72,000 | 52 CBM |
Step 1: Freight. The forwarder quotes $4,200 for the container, origin port to US port.
Step 2: Insurance. Insured value is 110% of goods plus freight: ($72,000 + $4,200) × 1.10 = $83,820. At an assumed 0.30% rate, the premium is $83,820 × 0.003 = $251.
Step 3: Duty. In the US, duty is charged on the transaction value, which for this FOB purchase is the $72,000 paid to the seller, without the international freight and insurance. Each SKU has its own rate. A: $48,000 × 4.0% = $1,920. B: $24,000 × 6.5% = $1,560. Total duty: $3,480.
Step 4: Customs fees. Merchandise processing fee at 0.3464% of value: $72,000 × 0.003464 = $249 (this fee has a minimum and maximum per entry that changes each fiscal year). Harbor maintenance fee at 0.125%: $72,000 × 0.00125 = $90.
Step 5: Brokerage, port, delivery, receiving and payment. Customs broker $250. Destination terminal and container charges $650. Drayage from port to warehouse $900. Unloading and receiving $300. Bank wire fee $40.
| Cost | Amount | Allocation basis |
|---|---|---|
| Product cost (FOB) | $72,000 | Direct to each SKU |
| Ocean freight | $4,200 | Volume |
| Insurance | $251 | Value |
| Duty | $3,480 | Direct to each SKU (own rate) |
| Merchandise processing fee | $249 | Value |
| Harbor maintenance fee | $90 | Value |
| Customs brokerage | $250 | Value |
| Destination terminal charges | $650 | Volume |
| Drayage to warehouse | $900 | Volume |
| Unloading and receiving | $300 | Volume |
| Bank wire fee | $40 | Value |
| Total landed cost | $82,410 |
Total landed cost is $82,410, or 14.5% on top of the $72,000 FOB value ($10,410 ÷ $72,000).
Allocating shipment costs to each SKU
The per-unit landed cost depends on how you split the shared costs. Use the basis that drives each cost:
- Volume (CBM) for freight, terminal, drayage and unloading on a container that fills up by space. Use weight instead if the load is heavy and reaches the weight limit first.
- Value for insurance, value-based fees, brokerage and bank charges.
- Direct for duty, because each tariff code has its own rate.
Volume-based costs are $4,200 + $650 + $900 + $300 = $6,050. SKU A has 32 of the 52 CBM (61.5%), SKU B has 20 (38.5%). Value-based costs are $251 + $249 + $90 + $250 + $40 = $880. SKU A has $48,000 of the $72,000 value (66.7%), SKU B $24,000 (33.3%).
| SKU A | SKU B | |
|---|---|---|
| Product cost | $48,000.00 | $24,000.00 |
| Volume costs ($6,050 × share) | $3,723.08 | $2,326.92 |
| Value costs ($880 × share) | $586.67 | $293.33 |
| Duty | $1,920.00 | $1,560.00 |
| Total landed cost | $54,229.74 | $28,180.26 |
| Units | 4,000 | 10,000 |
| Landed cost per unit | $13.56 | $2.82 |
| Increase over FOB price | 13.0% | 17.4% |
If you had split all $10,410 by value alone, SKU A would come out at $13.74 and SKU B at $2.75. That small difference matters: B, the bulky low-value item, would look cheaper than it is, and A dearer. Pick a basis per cost type, write it down, and use it every time.
Comparing the import with a domestic quote
For a sourcing decision (not for inventory valuation), add the cost of the extra time the stock spends in transit:
In-transit carrying cost per unit = landed cost per unit × annual carrying rate × extra days ÷ 365
Example (illustrative): door to door takes 35 days against 5 for a domestic supplier, so 30 extra days, and your carrying rate is 20%. SKU A: $13.56 × 0.20 × 30 ÷ 365 = $0.22, so $13.78. SKU B: $2.82 × 0.20 × 30 ÷ 365 = $0.05, so $2.87.
A domestic supplier quotes delivered (DDP) at $14.25 for A and $2.75 for B. The import wins on A by $0.47 a unit. The domestic supplier wins on B by $0.12, before you count its smaller minimum order and shorter lead time. Two products on the same container, two different answers.
How to Work Out the Duty
- Classify the product. Find its tariff code: the first six digits of the Harmonized System (HS) code are international, and each country adds more. Classification depends on material, function and construction. For anything you buy in volume, have a customs broker confirm it or ask customs for a binding ruling, because a wrong code means paying too much, or a penalty for paying too little.
- Look up the rate. In the US that is the Harmonized Tariff Schedule (HTS). Rates are ad valorem (a percentage of value), specific (per unit or kg), or compound (both).
- Check the valuation basis. The US charges duty on the transaction value, usually the price paid to the seller without international freight and insurance. The EU, the UK and many other countries charge on CIF value, which includes freight and insurance to the border. On the same goods and rate, the CIF basis gives a higher duty bill.
- Check for extra duties. Anti-dumping and countervailing duties, Section 301 tariffs in the US, and other country-specific measures can be much larger than the base rate and change with trade policy. Check the rate for the exact country of origin when you quote, and again before you ship.
- Check for preferences. A free trade agreement such as USMCA can cut the rate to zero if the goods meet the rules of origin and you have the paperwork to prove it.
What Each Incoterm Leaves You to Add
The Incoterm on a quote decides which of the components above the supplier has already paid. Make every supplier in an RFQ quote on the same term, or convert each quote to landed cost before you compare.
| Incoterm | Supplier's price includes | You still add |
|---|---|---|
| EXW (Ex Works) | Goods at the supplier's premises | Export clearance, origin pickup and handling, freight, insurance, duty, fees, brokerage, destination charges, delivery |
| FCA (Free Carrier) | Goods cleared for export and handed to your carrier at a named place | Main freight, insurance, duty, fees, brokerage, destination charges, delivery |
| FOB (Free On Board, sea only) | Goods cleared for export and loaded on the vessel | Ocean freight, insurance, duty, fees, brokerage, destination charges, delivery |
| CIF (Cost, Insurance and Freight) | FOB plus ocean freight and minimum insurance to your port | Destination charges not included in the freight, duty, fees, brokerage, delivery, and any extra insurance |
| DAP (Delivered at Place) | Delivery to your named place, not unloaded | Duty, import taxes, fees, brokerage, unloading |
| DDP (Delivered Duty Paid) | Everything up to your door, including duty | Unloading. Check that the supplier can legally act as importer of record |
Under CIF the supplier only has to buy minimum cover, and risk passes to you when the goods are loaded at origin. Check the policy, or buy your own.
Common Landed Cost Mistakes
- Comparing an EXW quote to a DDP quote. Fix: convert both to landed cost at your door first.
- Applying one duty rate to the whole shipment. Fix: calculate duty per tariff code and assign it directly to each SKU.
- Allocating everything by value. Fix: allocate freight and handling by volume or weight, as in the example above.
- Leaving out destination charges. Terminal handling, container fees and drayage are easy to miss and add up. Fix: ask your forwarder for an all-in door-to-door quote on the lane.
- Using last year's freight rate. Ocean rates move a lot between seasons and years. Fix: refresh lane rates quarterly and before every large award.
- Forgetting demurrage and detention. A customs exam or a slow pickup turns free time into daily charges. Fix: know the free days on every booking and keep a contingency line for delays.
- Ignoring the currency spread. The rate your bank applies is not the mid-market rate. Fix: compare the rate on your last few payments with the mid-market rate on the same days and use that spread in the model.
- Assuming insurance is included. Under EXW, FCA and FOB it is not. Fix: insure every shipment you take risk on.
How to Build Landed Cost Into Your RFQs
Calculating landed cost after you have picked a supplier only tells you what went wrong. Do it while the quotes are open:
- Before the RFQ (buyer): fix the Incoterm, named place and currency for every supplier. FOB origin port or FCA lets you apply your own freight rates. DDP makes comparison easy but hides the freight and duty markup inside the price.
- In the RFQ (buyer): ask for the data you need to calculate landed cost, not just a price.
- While quotes come in (buyer with forwarder): get a current freight quote for each origin lane.
- Before award (buyer with customs broker): confirm the tariff code and total duty rate for each SKU and origin.
- At award (buyer): compare suppliers on landed cost per unit plus in-transit carrying cost, and record the estimate on the PO.
- After receipt (finance or AP with buyer): enter the actual freight, broker and carrier invoices against the shipment, compare with the estimate, and update your lane rates.
Wording you can paste into the RFQ:
"Please quote FOB [port of loading] in USD, valid for 60 days. For each item state: unit price, minimum order quantity, units per carton, carton dimensions (cm) and gross weight (kg), country of origin, the HS code you export under, production lead time, and port of loading. Quotes on other Incoterms will be converted to FOB for comparison."
With AuraVMS you send the RFQ to every supplier by email invite and compare their quotes side by side. On the Medium Team plan you can attach drawings and cost breakdown forms to RFQ items and export the complete quote data to Excel, where your landed cost sheet does the calculation. AuraVMS does not calculate duties or freight itself; that stays with your forwarder, broker and spreadsheet.
Air vs Ocean: When the Faster Mode Pays
Air freight is charged on chargeable weight: the greater of actual weight and volumetric weight, usually 167 kg per cubic meter. Ocean is charged per container or, for LCL, per cubic meter or per 1,000 kg, whichever is greater.
Example (illustrative): 500 units of SKU A from the example above weigh 1.5 kg each, which is more than their volumetric weight, so 750 kg chargeable. At an assumed $5.50 per kg all-in, air costs $4,125, or $8.25 a unit. By ocean, SKU A's share of freight and handling was $3,723.08 ÷ 4,000 = $0.93 a unit, and the 30 days saved are worth $0.22 a unit in carrying cost. Air costs about $7.10 a unit more ($8.25 - $0.93 - $0.22).
Use air when the cost of being out of stock exceeds the extra freight per unit. For brackets selling with a few dollars of margin, that is only a line-down emergency. For a light, high-value part, the gap is much smaller and air can be the normal mode.
The same logic covers near-shoring and consolidation decisions. Run each option through the landed cost sheet, add in-transit carrying cost and any extra safety stock a longer lead time forces you to hold, then compare.
A Landed Cost Template and What to Track
One row per SKU per shipment is enough. These are the columns:
| Column | Example (SKU B above) |
|---|---|
| PO and shipment reference | PO-1042, container 1 of 1 |
| SKU, units, FOB value | B, 10,000, $24,000 |
| Volume and weight | 20 CBM, 3,100 kg |
| Tariff code and total duty rate | HTS code from broker, 6.5% |
| Freight, insurance, fees, brokerage, destination, delivery, receiving (allocated) | $2,620.25 combined |
| Duty | $1,560.00 |
| Total landed cost and per unit | $28,180.26, $2.82 |
| Estimated per unit at award | $2.79 |
| Variance | +1.1% |
Track two numbers over time. Landed cost uplift, (landed cost ÷ product cost) - 1, by lane and supplier, so you can estimate the next quote before freight is booked. Estimate variance, (actual - estimate) ÷ estimate, so you know how far to trust your estimates. When variance on a lane keeps running one way, the lane rates in your sheet are stale.
A spreadsheet works for a few shipments a month. If you import more than that, the landed cost module in your ERP or a dedicated landed cost tool will pull actual invoices onto each receipt for you.
FAQ
What is the formula for landed cost?
Landed cost = product cost + freight + insurance + duties and import taxes + customs fees and brokerage + port, handling and delivery charges. Per unit, divide each SKU's share of that total by its units. In the example above, a $72,000 FOB shipment cost $82,410 landed.
How do you calculate landed cost per unit when a shipment has several products?
Assign the product cost and duty directly to each SKU. Split freight, terminal and delivery costs by volume or weight, and value-based costs such as insurance and fees by value. Add each SKU's pieces and divide by its units.
Is import duty calculated on the FOB or CIF value?
It depends on the importing country. The US uses transaction value, generally the price paid to the seller without international freight and insurance. The EU, UK and many other countries use CIF value, which includes freight and insurance to the border.
Does landed cost include inventory carrying cost?
Not for inventory valuation. Accounting rules generally let you capitalize purchase price, duties, non-recoverable taxes, freight and handling to get goods to their location, but not the cost of capital tied up in transit. Confirm your treatment with your accountant. For a sourcing decision, add in-transit carrying cost as a separate line, as in the domestic comparison above.
How do I estimate landed cost before I have freight quotes?
Take the landed cost uplift from your last few shipments on the same lane and Incoterm and apply it to the new product cost, then calculate duty separately for the new tariff code. If you have no history, ask a forwarder for a door-to-door quote on a sample shipment; most will give one from carton dimensions and weight.
How do I handle currency in a landed cost calculation?
Convert at the rate you expect to pay, including your bank's spread, not the mid-market rate. For orders paid weeks after award, use a forward rate or recalculate at a few exchange rates to see how much the decision moves.
What is the difference between landed cost and total cost of ownership?
Landed cost stops when the goods arrive. Total cost of ownership adds what happens after: defects and returns, inventory holding, maintenance, and disposal. A supplier with the lowest landed cost can still lose on total cost if its parts fail more often.
Should I calculate landed cost for every purchase?
For every import and every large domestic order with separate freight, yes. For routine domestic buys quoted delivered, the quote is already close to landed cost.
Next Step
Take one import you placed this year, pull the forwarder, broker and carrier invoices, and rebuild its landed cost per unit with the template above. Then put the RFQ wording into your next overseas request so every quote arrives with the data to compare landed cost, not just price.
Stop leaving money on the table with incomplete cost analysis. Start your free trial of AuraVMS at auravms.com and bring landed cost visibility to every purchasing decision.