What is Landed Cost?
Landed cost is the total cost of getting a product from a supplier to its final destination. It goes beyond the purchase price to include all costs incurred along the way-transportation, duties, taxes, insurance, and handling.
Landed Cost Components
- Product cost: Purchase price from supplier
- Freight: Transportation charges (all modes)
- Insurance: Cargo insurance premiums
- Customs duties: Import tariffs based on HS code
- Taxes: VAT, GST, or other consumption taxes
- Brokerage fees: Customs broker charges
- Port fees: Terminal handling, demurrage
- Inspection fees: Compliance or quality checks
- Banking fees: Letters of credit, currency exchange
Why Landed Cost Matters
- True comparison of supplier options
- Accurate product pricing
- Margin calculation
- Make vs buy decisions
- Sourcing strategy development
Calculating Landed Cost
Landed Cost = Product Price + Freight + Insurance + Duties + Taxes + Fees
The specific components depend on the Incoterm used in the purchase agreement.
For more details, see:What is Landed Cost?