Definition
Landed cost is the total cost of a product from the supplier's door to the buyer's warehouse, including the purchase price, freight, insurance, customs duties, taxes, and all handling charges.
Why it matters for traders
Knowing your landed cost is the foundation of profitable trading. If you only track the purchase price, you may miss 20-40% in additional costs that directly impact your margin.
Components of landed cost
- Product cost — Purchase price from the supplier
- Freight — Ocean, air, or land transport charges
- Insurance — Marine cargo insurance
- Customs duties — Based on HS code and country of origin
- Taxes — VAT, GST, or other consumption taxes
- Port charges — Terminal handling, wharfage, THC
- Inland transport — Trucking from port to warehouse
- Brokerage fees — Customs broker charges
- Bank charges — LC fees, wire transfer costs
- Other — Inspection, testing, storage, demurrage
Landed cost formula
Landed Cost = Product Cost + Freight + Insurance + Duties + Taxes + Port Charges + Inland Transport + Other Charges
Cost allocation methods
When a shipment contains multiple products, you need to allocate shared costs (freight, duties) to individual items:
- By value — Proportional to each item's purchase price
- By weight — Proportional to each item's weight
- By volume — Proportional to each item's CBM
- Equal split — Evenly across all items
Operational example
A Dubai importer buys electronics from Shenzhen for USD 50,000. The landed cost breakdown: product USD 50,000 + ocean freight USD 3,500 + insurance USD 500 + UAE customs duty 5% (USD 2,700) + VAT 5% (USD 2,835) + port charges USD 400 + trucking USD 300 = Total landed cost USD 60,235. The true cost per unit is 20.4% higher than the purchase price.