When sourcing products from overseas suppliers, it is essential to accurately calculate the Landed Cost of Imported Goods. In order to do that, you must clearly understand all of the additional costs and charges involved in the supply chain process. Before contacting an overseas supplier and get quotations for products, make sure you have a clear idea of all the landed price of the products. Below we describe all the information you will need by the time the goods are ordered, shipped, customs cleared and delivered to your door.
To calculate the landed costs of imported goods, you must:
1. Receive a detailed quotation from your supplier with all details confirmed. The quotation must include the following:
- Shipper’s details
- Consignee’s details
- Port of Loading
- Port of Discharge
- Currency (most commonly USD)
- Product details and pricing
- HS Codes
- Overall packaging size
- Shipment type (by Full Container – FCL, or Less-than-Container-Load LCL Cargo).
2. Understand your actual freight and additional costs of imported goods.
Contact your freight forwarder to get a confirmed quotation to get products shipped through to your location. Most Global Trade shipments are sold on FOB IncoTerms (Free-On-Board) which means that the consignee (buyer) will have to pay for all additional costs and charges AFTER the goods have been loaded on board the vessel for export.
A freight forwarder’s quote will usually be itemized to show all of the fees involved. This includes:
- International Seafreight from Port of Loading to Port of Discharge (usually in USD) – Note sea freight rate vary throughout the year and you will have to confirm the validity date of your prices.
- Local charges in the country of import (get these costs in your local currency) – These include local port handling costs, documentation, customs clearance, quarantine, marine transit insurance, domestic trucking etc.
- Local Import Duty Rates – If you supply the HS Code for the goods to import, the freight forwarder or customs broker can confirm what rate of duties will be applied to the imported goods. Also, confirm how the import duty is charged on your product. This process varies from country to country so get confirmation for your situation.
- Import Taxes – Understand the local tax rate and how it is applied to imported goods.
3. Understand your actual currency exchange rates and costs.
There are plenty of ways to make International payments and currency exchange. You must clearly understand the actual exchange rate that your Currency Exchange provider can offer you. Note that the exchange rate actually secured will be less than the current trading value.
Let’s look at a basic example of a 20’ shipment of goods from China. A supplier has quoted:
- 100pcs of furniture items – $100 USD per piece
- IncoTerm – FOB
- Port of Loading – Shanghai Port
- Total FOB Cost – $10,000 USD
- Shipment Type – 20′ GP Container
- HS Code – 1234.56
Note – The import duty and import tax rates vary from country to country, and are applied in different ways. You should consult your freight forwarder or customs broker to understand the process involved in your location and work out your landed cost accordingly.
The below is just an example to help you understand the process.
Step 1 – Convert all foreign currencies into your local one (taking into account your actual exchange rates that will be secured when making International T/T payments). You will most likely have to convert the supplier’s USD costs and the International Seafreight charges into your local coin. When you have converted all foreign currencies into your local currency, add all of the costs together.
- Product FOB $10,000USD = $13,000 in your local currency
- Seafreight $2000USD = $2600 in your local currency
- TOTAL Product + Seafreight = $15,600 local currency
Step 2 – Add all local import costs and charges from your freight forwarder – say $1500:
- ADD $1500 (in your local currency)
Step 3 – Your freight forwarder has confirmed that a 5% import duty rate will apply to FOB Value of imported goods (local currency). 5% import duty will be charged on $13,000:
- ADD $650 in import duty charges
Step 4 – Add import taxes – say 10% import taxes is charges on the final value of imported goods (final value $17,750):
- ADD $1775 import taxes
So your Final Landed Price of goods imported into your country:
- FOB $13,000
- + Seafreight $2600
- + All local import costs $1500
- + 5% import duty $650
TOTAL LANDED COST = $17,750 PLUS 10% TAX OF $1775
This is a total landed price of the overall goods. If you want to have multiple items inside a shipment, you will want to calculate the landed cost per product. To do this, you will need to accurately understand the packaging sizes and weight of each product and apply the above costs per product. The easiest way to do this is to calculate the cubic measurement per product (m3 per piece) or weight per item (in kilograms). The total of the International Freight costs + local import costs (in this case $15,600) can then be split up by total cubic measurement or weight (whatever is greater).
The process can be long, time consuming and a small mistake can cause delays and issues. To support businesses with this process, we created a Landed Cost Calculator Template. This Excel spreadsheet will help you work out the landed price of your imported products.