Landed cost is the total cost of getting a product to your door: the supplier’s price plus freight, insurance, customs duty, brokerage and handling. Dividing the total by the number of units gives landed cost per unit, the figure to use for pricing, margin and supplier comparison. A low unit price means little until these extra charges are added.
What is the landed cost formula?
The formula adds every cost incurred between the supplier’s price and your warehouse shelf. It is the same one used in the landed cost calculator.
Landed cost = goods value + freight + duty + insurance + brokerage and other fees
Landed cost per unit = landed cost / quantity
- Goods value: unit price times quantity.
- Freight: ocean, air, rail or road charges for the shipment, plus any per-unit freight quoted separately.
- Duty: customs duty, either a percentage of goods value or a flat amount, depending on the tariff.
- Insurance: cargo insurance for the shipment.
- Brokerage and other fees: customs brokerage, port and terminal charges, inland delivery and handling.
Worked example: two quotes compared
The figures are illustrative. A buyer wants 2,000 units and receives two quotes. Duty is 6% of goods value on both, and brokerage and port fees are $800 each.
- Supplier A quotes $20.00 per unit. Goods value = 2,000 x $20 = $40,000. Freight is $3,000 and insurance is $200.
- Duty = 6% x $40,000 = $2,400.
- Landed cost = $40,000 + $3,000 + $200 + $2,400 + $800 = $46,400, or $23.20 per unit.
- Supplier B quotes $19.00 per unit. Goods value = $38,000. Freight is $5,500 and insurance is $200.
- Duty = 6% x $38,000 = $2,280. Landed cost = $38,000 + $5,500 + $200 + $2,280 + $800 = $46,780, or $23.39 per unit.
Supplier B looks $1.00 cheaper per unit but costs slightly more once it arrives. The difference is small, which is the point: the ranking only becomes visible after the extra costs are included, and a slower or less reliable lane could widen the gap further.
What costs are easy to miss?
The costs most often missed are the ones billed separately from the freight quote. Use this checklist when building a landed cost.
- Origin charges, such as export clearance, inland haulage to the port and documentation fees.
- Terminal handling and port or airport fees at the destination.
- Customs brokerage and any inspection or examination fees.
- Additional duties, such as anti-dumping, countervailing or surtaxes, where they apply.
- Inland transport from the port to your warehouse, and unloading.
- Storage, demurrage or detention charges when containers or cargo wait too long.
- Currency conversion costs when you pay in a foreign currency.
- The cost of capital and extra safety stock when lead times are long.
Not every item belongs in every landed cost. The test is whether the cost changes because of where and how the goods are bought. If it does, include it so quotes can be compared fairly.
How does duty fit in?
Duty depends on the goods’ tariff classification, country of origin and the customs value, and the base for the duty differs by country. Some customs authorities add freight and insurance to the value before applying the rate, while others apply it to the goods price alone. The calculator uses goods value as the base, so check the rules for your import market before relying on the duty line.
Sales taxes such as GST, HST or VAT are usually handled separately. Recoverable taxes are normally left out of landed cost because they are not a true cost, while non-recoverable taxes should be added to other fees. For goods entering Canada, the Canada import cost calculator adds GST/HST and brokerage, and the CUSMA agreement may allow duty-free treatment when origin rules are met and documented.
How to use landed cost in decisions
Use landed cost per unit as the basis for price and margin decisions, and compare suppliers on it rather than on the quoted price. Then stress-test it. Rerun the figures with a higher freight rate, a higher duty rate or a delay fee to see how much margin they consume.
- Combine landed cost with order sizing. A larger order may lower freight per unit but raises holding cost, which the EOQ calculator can help weigh.
- Keep a record of assumptions, such as the freight rate date and the duty rate used, so later quotes are comparable.
- Update the calculation when freight, duty or exchange rates change.
Where analytics helps
Analytics helps most with data entry and monitoring. Matching freight invoices, customs entries and purchase orders automatically shows where actual landed cost drifts from the estimate. Models can also flag lanes where costs are rising. Estimates still depend on correct tariff classification, which is best confirmed by a broker.
Common questions
What is included in landed cost?
Landed cost includes the goods, freight, insurance, customs duty and the fees paid to get the goods to your warehouse, such as brokerage, port charges and handling. Some businesses also add the cost of capital while goods are in transit. The aim is the true cost per unit on arrival.
Is landed cost the same as total cost of ownership?
No. Landed cost stops when the goods arrive. Total cost of ownership continues through use, covering storage, quality problems, returns, maintenance and disposal. Landed cost is one input to it, and the better measure when you are comparing suppliers on what it costs to bring goods in.
Should GST or VAT be part of landed cost?
Usually not, if the tax is recoverable through input tax credits or similar. Recoverable tax is not a real cost to the business. If a tax cannot be recovered, treat it as a cost and add it to other fees. Confirm treatment with your accountant.
How often should landed cost be recalculated?
Recalculate whenever freight, duty or exchange rates change, and for every new supplier quote. For stable lanes, a quarterly review is common. Keep the assumptions with each calculation so you can see which input moved when the result changes.
Sources and further reading
- Canada–United States–Mexico Agreement (CUSMA) (Government of Canada)
- Association for Supply Chain Management (ASCM)
- Logistics Performance Index (World Bank)