How to Work Out Landed Cost Before You Order From China
The factory price is only the first line. Freight, insurance, duty, import VAT and a handful of fees decide what a unit really costs you on your shelf. Here is how to add them up before you commit.
In this piece 5 sections
Two suppliers quoting $4.10 and $4.60 for the same product are not necessarily 50 cents apart. One may be quoting EXW and the other FOB; one may pack 40 units to a carton and the other 24. The only number that lets you compare offers, set a price and check your margin is the landed cost per unit: what it costs to get one sellable unit through customs and into your warehouse.
Step 1: Start from the Incoterm
The Incoterm on the quote tells you which costs the factory has already included. An FOB price covers the goods, export packing, export clearance and loading at the origin port. Everything after that is yours: the main freight leg, insurance, destination port charges, customs clearance, duty, import VAT and delivery to your door. An EXW price leaves even the origin trucking and export clearance to you. If you are unsure which applies, ask, and get the answer in writing on the proforma invoice.
Step 2: Add freight and insurance
Ask your forwarder for an all-in quote broken into origin charges, the main freight leg and destination charges. Destination charges such as terminal handling, documentation and delivery orders are easy to forget and can add up to a meaningful share of the bill on small shipments. Cargo insurance is usually a small percentage of the insured value; it is cheap relative to the cost of a lost or damaged container, and some customs regimes count it in the value you pay duty on.
Step 3: Work out the customs value
Duty is charged on the customs value of the goods, and that is defined differently depending on where you import. The US generally values goods on the price paid for them, excluding the international freight and insurance. The UK and the EU generally use a CIF-style value that includes the cost of getting the goods to the border. The same shipment can therefore attract a different duty bill in each market even at the same rate.
The classification decides the rate
Every product is classified under a tariff code, and the code sets the duty rate. Rates can differ sharply between codes that look similar, and goods from China can carry extra tariffs on top of the standard rate in some markets. Check the code and the current rate with your customs broker before you place the order, not when the goods arrive.
Step 4: Add duty, import VAT and fees
Multiply the customs value by the duty rate for your tariff code. In the UK and the EU, import VAT is then charged on the customs value plus the duty. A VAT-registered business can normally reclaim it, but it is still cash that leaves your account at import. In the US there is no import VAT, but there are smaller federal fees, such as the merchandise processing fee and, for ocean freight, the harbor maintenance fee. Finally, add your customs broker's clearance fee and the cost of delivery from the port or airport to your warehouse.
| Cost line | Usually included in an FOB price? | Notes |
|---|---|---|
| Goods and export packing | Yes | Check units per carton |
| Origin trucking and export clearance | Yes | Not included in EXW |
| Main freight leg | No | Ocean or air, quoted by your forwarder |
| Cargo insurance | No | Small percentage of insured value |
| Destination port charges | No | Easy to miss on small shipments |
| Duty | No | Rate set by the tariff code |
| Import VAT (UK, EU) | No | Usually recoverable if VAT-registered |
| Broker fee and delivery | No | Quote these before you order |
Step 5: Divide by the units you can actually sell
Add every line together and divide by the number of units, then adjust for reality. If your inspection standard tolerates a small defect rate, or you expect some transit damage, divide by the sellable units rather than the units shipped. Do the same exercise for a smaller and a larger order quantity: freight and fixed fees spread very differently across 500 units than across 5,000.
If you only compare factory prices, you are comparing the one number that matters least once the goods have landed.
Keep the spreadsheet once you have built it. When a freight rate moves or a tariff changes, you can see within minutes what it does to your margin, rather than finding out from your accountant at the end of the quarter.
