01What landed cost means
Landed cost is the total cost of getting a product from the supplier to your warehouse or production line, ready to use. It is the number that belongs in your cost of goods sold, your pricing and your supplier comparisons. Using the supplier's price alone understates cost, sometimes badly, and makes distant suppliers look more attractive than they are.
Typical components:
| Component | What it includes | Who pays depends on |
|---|---|---|
| Product cost | The price on the supplier's invoice | Always the buyer |
| Origin charges | Export packing, loading, export clearance | Incoterm |
| Main freight | Sea, air, rail or road to the destination port or border | Incoterm |
| Insurance | Cargo insurance, usually a small percentage of value | Incoterm (required under CIF and CIP) |
| Import duty | Customs duty on the customs value | Buyer as importer, except under DDP |
| Other duties | Anti-dumping, excise, CBAM certificates where applicable | Importer |
| Destination charges | Terminal handling, port fees, customs broker | Incoterm and contract |
| Inland transport | From port or border to your site | Incoterm |
| Financing and holding | Cost of capital for goods in transit and in stock | Buyer |
02The landed cost formula
Landed cost = product cost
+ freight + insurance
+ duty (rate × customs value)
+ other non-recoverable taxes
+ brokerage + port and terminal charges + inland transport
(+ cost of capital in transit, if you want the full economic cost)
Landed cost per unit = landed cost of the shipment / units receivedThe main subtlety is the customs value. In the European Union, the customs value is based on the transaction value plus the cost of transport and insurance up to the point where the goods enter the EU. That is the CIF value. Duty is therefore charged on freight too: when container rates double, the duty bill rises as well. In the United States the customs value excludes international freight and insurance, so the duty base is closer to the FOB value.
03How Incoterms change the calculation
Incoterms are the standard trade terms published by the International Chamber of Commerce. The current version, Incoterms 2020, has 11 rules. They define where the risk passes from seller to buyer and which costs each side pays. The same product can have very different invoice prices depending on the Incoterm, which is why comparing offers on price alone is misleading.
| Incoterm | Seller pays up to | You still add |
|---|---|---|
| EXW (Ex Works) | Goods ready at the seller's premises | Everything: export clearance, all transport, insurance, duty, fees |
| FCA (Free Carrier) | Delivery to your carrier at the agreed place | Main freight, insurance, duty, destination costs |
| FOB (Free On Board) | Goods loaded on the vessel at the origin port (sea only) | Main freight, insurance, duty, destination costs |
| CFR / CPT | Main freight to destination | Insurance, duty, destination costs |
| CIF / CIP | Main freight and minimum insurance | Duty, destination costs |
| DAP (Delivered at Place) | Transport to your named place, not unloaded | Duty and import clearance |
| DDP (Delivered Duty Paid) | Everything including import duty | Usually only unloading |
04Calculate it
Enter the values of a real shipment. The calculator applies the EU convention, with duty charged on the CIF value.
EU convention: duty is charged on the CIF value. Import VAT is excluded because a VAT-registered business normally recovers it.
05A worked comparison of two suppliers
A manufacturer needs 1,000 aluminium housings per month and has two offers.
| Supplier A (Asia) | Supplier B (Eastern Europe) | |
|---|---|---|
| Price per unit | €18.00 FOB | €21.50 FCA |
| Freight per shipment | €2,400 (sea, 40' share) | €900 (truck) |
| Insurance | €120 | €60 |
| Duty rate | 6% | 0% (EU origin) |
| Brokerage and port fees | €650 | €0 |
| Inland transport | €300 | included |
| Transit time | 38 days | 4 days |
| Landed cost per unit | €22.70 | €22.46 |
The supplier that is 16% cheaper on the price list is about 1% more expensive landed, before counting the cost of holding five extra weeks of stock in transit and in safety stock. If the Red Sea route is closed and freight doubles, the gap widens further: the duty on freight rises too.
06Costs that are often forgotten
- Demurrage and detention. Charges for keeping containers at the port or outside the terminal beyond the free days. They spike during congestion.
- Currency conversion. If you pay in dollars and sell in euros, the exchange rate at payment, not at order, is the real cost.
- Inspection and certification. Laboratory tests, conformity marking, phytosanitary checks.
- Quality losses. Damaged or non-conforming units that cannot be returned economically.
- Working capital. Goods in transit for 40 days are paid for but not usable. At an 8% cost of capital, 40 days in transit adds roughly 0.9% to the cost.
- Carbon costs. From 2026 the EU Carbon Border Adjustment Mechanism adds a cost on some imported goods such as steel, aluminium and fertilisers.
07Using landed cost in decisions
Landed cost becomes powerful when you recompute it under scenarios. A sourcing decision that looks right at today's freight rates and tariffs may be wrong under a plausible shock. For each critical input, keep a landed-cost model and test it against: freight rates ×2, a 10% move in the currency you pay in, a tariff increase, and a longer route around a closed chokepoint. The supplier that wins in most scenarios, not only in the base case, is the robust choice.
FAQFrequently asked questions
What is included in landed cost?
The product price plus all costs to get it to your site: international freight, insurance, import duty and other non-recoverable taxes, customs brokerage, port and terminal charges, and inland transport. Some companies also add the financing cost of goods in transit.
Is VAT part of landed cost?
For a VAT-registered business, import VAT is normally recovered through the VAT return, so it is a cash-flow item rather than a cost and is excluded from landed cost. It should be included if you cannot recover it.
Why is duty calculated on freight in the EU?
EU customs value includes transport and insurance costs up to the EU border, which is the CIF basis. Duty is a percentage of that value, so higher freight means higher duty.
How do Incoterms affect landed cost?
They define which costs are included in the supplier's price. Under EXW you pay almost everything separately; under DDP the seller pays almost everything, including duty. To compare offers, convert all of them to landed cost at your door.
How often should I recalculate landed cost?
At least every quarter for critical inputs, and whenever freight rates, exchange rates or tariffs move materially. Keeping a model per input makes this quick.