Glossary
Terms & Glossaries of Shipping and Trading
Landed Cost
Landed Cost is a critical freight industry term that refers to the total cost of shipping goods from the supplier to the buyer’s location, encompassing all expenses incurred throughout the supply chain. This includes not only the base price of the product but also logistics fees, taxes, duties, insurance, and ancillary charges. It is a foundational concept for budgeting, pricing strategies, and compliance in international trade.
Landed Cost (also called Total Landed Cost) quantifies the end-to-end financial impact of moving goods across borders. Unlike basic freight costs, it accounts for:
Product Cost: Purchase price or manufacturing expenses.
Logistics Fees: Ocean/air freight, fuel surcharges (BAF), and currency adjustments (CAF).
Regulatory Charges: Import duties, tariffs, customs brokerage fees, and compliance costs (e.g., ISF filing in the U.S.).
Risk Mitigation: Insurance premiums, demurrage/detention fees.
Post-Delivery Costs: Warehousing, last-mile delivery, and taxes (e.g., VAT or GST).
Pricing Accuracy:
Businesses use landed cost calculations to set competitive yet profitable prices. For example, a retailer importing electronics from Asia must factor in 12% import duty and 15% VAT to avoid losses.
Incoterms Alignment:
The allocation of landed cost components depends on trade terms. Under DDP (Delivered Duty Paid), the seller bears all costs, including destination-country taxes, while LDP (Landed Duty Paid) limits the seller’s responsibility to duties without covering inland transportation.
Compliance and Transparency:
Accurate landed cost tracking ensures adherence to customs regulations (e.g., HS code classifications) and prevents penalties for undervalued goods.
Dynamic Variables: Fluctuating exchange rates (CAF), fuel prices (BAF), and geopolitical changes (e.g., tariff wars) complicate cost predictability.
Hidden Fees: Port handling charges, inspection fees, or seasonal surcharges (e.g., peak season fees) are often overlooked.
Regional Variations: Countries like Brazil impose complex tax structures (e.g., ICMS, PIS/COFINS), requiring localized expertise.
A U.S. company importing textiles from India under DDP terms would calculate landed cost as:
Product Cost: $10,000 (FOB Mumbai).
Freight & Insurance: $2,500 (CIF New York).
Duties: 8% (800)+MerchandiseProcessingFee(500).
Domestic Delivery: 1,200(fromporttowarehouse).∗∗TotalLandedCost∗∗:14,500
Automated Software: Platforms like SAP Landed Cost Management integrate real-time data on tariffs and logistics fees.
Collaboration: Freight forwarders and customs brokers provide granular cost breakdowns to align with Incoterms 2020.
Audit Trails: Maintain records of duty payments and freight invoices for dispute resolution.
