Landed cost is the total cost of getting a product from the supplier to the point where it is ready for use, sale or storage in your business. Comparing suppliers only on purchase price can be misleading because freight, duty, tax, port charges and inland logistics can materially change the final cost per unit.
What Is Included in Landed Cost?
- Purchase price of the goods
- International freight
- Cargo insurance
- Customs duty
- Import VAT, GST or similar taxes where applicable
- Customs broker and clearance fees
- Port, terminal and handling charges
- Inland transport to the warehouse or final destination
- Bank, documentation, inspection and compliance charges
- Other directly attributable import costs
Basic Landed Cost Formula
Total Landed Cost = Goods Value + Freight + Insurance + Duty + Import Taxes + Clearance + Port/Terminal Charges + Inland Transport + Other Import Costs
Landed Cost per Unit = Total Landed Cost ÷ Imported Quantity
The exact customs-value and tax base depends on the importing country. In many jurisdictions, customs duty is calculated on a customs value based on the goods value plus certain transport and insurance costs, while import VAT or GST may be calculated on a broader base. Always validate the applicable local rules before using the result for statutory declarations.
Worked Example
| Component | Example |
|---|---|
| Quantity | 1,000 units |
| Purchase price | 8.50 per unit |
| Goods value | 8,500 |
| Freight | 1,800 |
| Insurance | 120 |
| Duty | 5% of the template CIF value = 521 |
| Import tax / VAT | 10% of CIF + duty = 1,094.10 |
| Clearance, terminal, inland and other charges | 1,270 |
| Total landed cost | 13,305.10 |
| Landed cost per unit | 13.31 |
Why Purchase Price Alone Can Mislead
A supplier offering a lower unit price may still be more expensive after higher freight, duty exposure, handling costs, minimum shipment size or inland logistics are included. The correct commercial comparison is therefore the landed cost per usable unit, not the supplier invoice price alone.
How Incoterms Affect the Calculation
Incoterms determine which costs and risks are borne by the seller and which are borne by the buyer. For example, an EXW price normally requires the buyer to add more origin and freight costs than a CIF or DAP offer. A landed-cost comparison should therefore normalize competing quotations to the same destination and cost boundary before selecting a supplier.
Supplier and Route Comparison
- Use the same destination and comparable quantity for each option.
- Enter supplier price, freight, insurance, duty and tax assumptions.
- Add clearance, terminal, inland transport and financial costs.
- Calculate landed cost per unit for each option.
- Review lead time, reliability and risk alongside cost before making the final decision.
Common Landed Cost Mistakes
- Comparing FOB, CIF, DDP and EXW prices as though they cover the same costs.
- Applying duty or tax to the wrong customs-value base.
- Ignoring port, terminal, broker or documentation charges.
- Ignoring inland delivery from the port or airport.
- Using shipment-level costs without converting them to cost per unit.
- Ignoring damaged, rejected or unsaleable units when calculating usable-unit cost.
- Selecting the lowest landed cost without considering lead time, service reliability or supply risk.
Download the Practical Workbook
Use the SCMANA Landed Cost Calculator to calculate total import cost and landed cost per unit, then compare alternative suppliers or shipping routes using the same destination cost boundary. The workbook includes purchase value, freight, insurance, duty, import tax, clearance, port charges, local transport, documentation and other import costs.
Download the Landed Cost Calculator (Excel)
