What is landed cost and how to calculate it

Knowing the landed cost is vital for importers. Landed cost is the price of a product including all costs involved in shipping it to the buyer’s destination. It is the total price of the product, and is made up of a number of fees that are not obvious at the outset.

Working out the total cost of an imported product is essential in being able to accurately determine the correct selling price and profit margin. The cost of shipping and duty on products bought overseas is often significant and will seriously impact on the selling price and profit to be made on the imports.

What is landed cost and how to calculate it?What is landed cost and how to calculate it?

How to calculate landed cost

It is common for importers just starting out to grossly misjudge the cost of shipping and transportation when importing products from overseas. To calculate the correct landed cost total, there are several major components to get in order.

Cost of goods

The cost of goods is determined by the commercial invoice used to purchase the goods. This is a document needed for the international shipping process.

International Freight

The international air or sea freight is quoted by the freight forwarder and comes in several parts:

  • International shipping fee from origin to the US
  • Handling charges at the US seaport or airport
  • Transport from the port to final destination within the US

 

Customs duties

Customs duties are tariffs charged by the government when goods are imported into the US. The amount depends on the country of import and product (as defined by its HS code). It is not uncommon for this cost to be omitted when calculating landing costs, resulting in the value being significantly under-estimated.

Someone importing a sea container load of goods can find out the tariffs are 40% of the cost of the goods. In most cases customs duties are less than 10%; however there are products that have tariffs of 100%, so checking this cost is important.

Customs processing

Customs processing fees come from customs brokers and authorities; customs brokers file and organise the customs clearance, and authorities ensure the imported products shipments adhere to US health, safety and intellectual property laws and other customs duties regulations.

Insurance

It is often easiest to have the freight forwarder supply insurance for the goods during shipment and provide the cost. There are, however, many third parties that provide such cover. Note that the amount insured should include all the costs of shipping the product, not the cost of the product alone.

Air freight landed cost example when importing into the US

Here is an example calculation of a landed cost when using air freight to import goods to the US. Say we are importing goods from Hong Kong to Dallas – the details in working out the costs include:

  • Cost of goods – $22,000
  • International freight
    • Air freight – $2,500
    • Airport handling charges – $900
    • Transport – $400
    • Customs duties – $1,150
  • Customs processing – $350
  • Insurance – $180
  • Landed cost – $27,480

Landed cost example when importing into US via sea freightLanded cost example when importing into US via sea freight

Sea freight landed cost example when importing into the US

Here is an example calculation of a landed cost when using sea freight to import goods to the US. Say we are importing goods from Shanghai to Los Angeles – the details in working out the costs include:

  • Cost of goods – $35,000
  • International freight
    • Sea freight – $1,200
    • Port handling charges – $500
    • Transport – $300
  • Customs duties – $1,750
  • Customs processing – $550
  • Insurance – $24
  • Landed cost – $39,240

Landed cost example when importing into US via sea freight

International shipping by air freight or sea freight

Importers just starting out will generally find it much easier to operate by having all products shipped by air, rather than sea. Starting out generally means the shipments will be small, so there will be no need for a customs agent or major logistics. With air freight, products will arrive within three to five business days. As the importer continues to trade they become more confident and start importing larger shipments.

Sea freight is cheaper but slow

At some point it will become more economical to use sea freight to transport your products. Sea freight, however, requires a little more planning and work. Sea freight is much cheaper than air freight, however it does take much longer to get to a destination. Sea freight from China to northern Europe can take up to 40 days, and up to 20 days to the western US. As a result, importers need to plan several months ahead when shipping by sea to manage their product inventory levels.

Shipping containers

When you ship products via air or sea freight, and your shipment is less than a container load (LCL), the shipping costs are proportional with the size and weight, and size of the product. Sea freight is based on a full container load (FCL) and a fixed fee is charged for a fixed space. To make the most of FCL, importers need to then fill the container as best as they can to make the most of the flat fee. FCL would generally require a customs agent to handle some aspects of this type of shipping. There are several steps involved in getting the container cleared at the port and transported to the final destination, and these are often complex to manage.

International freight calculator

Use our international freight calculator to get the shipping price costing with no hidden fees or costs so you can calculate your landed costs. It will calculate prices for both air and sea freight, so it is easy for you to compare prices and expected delivery times. It is easy to use, only requiring you to:

  • Select import and pick your freight terms
  • Choose your origin and destinations
  • Enter your shipment dimensions and weight

Consider us for international freight and get the landed cost for your cargo

If you are looking for help with your international freight, then consider us. We are a freight forwarder who will help you calculate the landed cost of your products. Let Freight Forwarder Quote Online quote your international freight and help you with our full range of international freight services.

Our international freight network has more than 40,000 locations across the globe and we give full costing on air and sea freight, showing all costs upfront with no hidden fees. We run a fast, lean and transparent international freight service, so contact us online and send a message. You can even message us on Facebook for a quote on doing your international freight and helping you with calculating your landed cost.