How landed cost is built up

The calculation runs in a specific order, and the order matters because each stage feeds the next. First the customs value is established. Most countries use the CIF value — goods plus freight plus insurance — while the United States generally assesses on FOB, meaning goods only. On the same shipment that difference alone changes the duty bill.

Duty is applied to that customs value. Then import VAT or GST is charged on the value including the duty, which surprises people the first time they see it: you pay tax on the tax. Finally the non-taxable service costs are added — broker fees, terminal handling, inland delivery.

Recoverable versus real cost

If you are VAT or GST registered, import VAT is usually recoverable through your return. It affects cash flow but not ultimate cost, which is why this calculator separates total outlay from net cost. Duty is never recoverable — it is a real, permanent cost, and it belongs in your product costing. Confusing the two is the most common error in import pricing.

The rule that trips everyone up

Under CFR, CIF, CPT and CIP the seller pays for the main carriage — and risk still transfers at the origin. If the vessel sinks mid-ocean on a CIF shipment, the goods were the buyer's at the moment they were lost, even though the seller booked and paid for that voyage. The seller's insurance obligation under CIF is also only minimum cover (Institute Cargo Clauses C) unless you agree otherwise in the contract. Under CIP, Incoterms 2020 raised the requirement to all-risks cover.

This split between who pays and who bears risk is the single most misunderstood part of the rules, and it is why "the seller is handling shipping" is not an answer to the question "whose loss is it?".

Choosing a rule

Two practical warnings. DDP requires the seller to clear customs and pay duty in the buyer's country, which often means registering for tax there — many sellers agree to it without realising what it involves. EXW requires the buyer to handle export clearance in the seller's country, which a foreign buyer frequently cannot legally do. FCA solves the second problem and DAP usually solves the first.

Why carriers charge by volume

An aircraft or truck runs out of space long before it runs out of weight capacity when carrying light bulky goods. Volumetric pricing exists so a container of pillows does not travel at the same price as a pallet of bolts. The formula is length × width × height in centimetres divided by a divisor set by the carrier — 6000 is standard for air freight, 5000 for express couriers, and around 3000 for road.

The smaller the divisor, the higher the volumetric weight, so a courier's 5000 divisor produces a bigger charge than air freight's 6000 for the same box. Always check which divisor your quote is based on.

Sea freight is different

Sea LCL is priced on revenue tons — whichever is greater, cubic metres or metric tonnes. One cubic metre and one tonne are treated as equivalent. Full container loads are priced per container regardless of what is inside, which is why filling a container properly matters so much.

Two limits, and the one that binds

A container fills up in one of two ways: it runs out of space or it runs out of payload. Light goods hit the volume limit and leave weight capacity unused; dense goods like tiles, liquids or machinery hit the payload limit with the container half empty. This calculator checks both and tells you which one stopped you.

The geometric figure here assumes a simple block stow — cartons aligned in rows, all in the same orientation, no mixed layers or interlocking. Real loading achieves a little more or a little less depending on how carefully it is done, so treat the number as a planning figure and confirm with your forwarder for a tight load.

Container internal dimensions

Note that a 40 ft container holds roughly twice the volume of a 20 ft but barely more weight. For dense cargo two 20 ft containers often carry more than one 40 ft — and road weight limits at either end may cap you well below the container's own payload rating.

Quote the term, not just the price

"$17.12 per unit" means nothing without an Incoterm attached. The same goods from the same factory are a different price EXW, FOB and CIF, because each term bundles a different set of costs into the figure. A buyer comparing your CIF price against a competitor's FOB price is comparing two unlike numbers — and unless you say which term you quoted, you will look expensive.

This ladder builds each price from the same cost base so you can see exactly what each step adds. It also applies your target margin as a true margin, not a markup: a 15% margin means 15% of the selling price, which requires dividing cost by 0.85, not multiplying by 1.15.

What to quote

New buyers usually want CIF or DAP, because it gives them one number and no logistics work. Experienced importers often prefer FCA or FOB, because they have freight rates better than yours and would rather control the shipment. Quoting a ladder — showing FOB and CIF side by side — is a practical way to let the buyer choose without a second round of emails.

Pricing from landed cost, not invoice cost

The break-even price shown above is your landed cost per unit. Anything below it loses money on every sale, regardless of how attractive the supplier's price looked. Importers who price at "supplier cost × 2" and assume that covers everything are often working on a much thinner margin than they believe — and occasionally on a negative one, when duty is high or freight is expensive relative to goods value.

Costs this does not include

Landed cost gets goods to your warehouse. It does not include warehousing, pick and pack, your own overhead, marketing, payment processing, returns, or the cost of capital tied up while a container is on the water — typically 30 to 45 days for an ocean shipment, during which you have paid the supplier and have nothing to sell. For a realistic net margin, add those on top of the landed figure.

The fee that is not called a fee

Banks and payment providers advertising "no transfer fee" are almost always taking their margin in the exchange rate instead. The mid-market rate is the real rate — the midpoint between buy and sell that you see on financial sites. What you are offered is that rate minus a margin, and on international trade volumes that margin dwarfs any headline fee.

On a $50,000 payment, a 2.5% rate margin costs $1,250. The $15 wire fee that gets all the attention is 1% of that. For a business importing regularly, shaving the rate margin from 2.5% to 0.5% on $600,000 of annual payments saves $12,000 a year — usually far more than any negotiation on freight.

The trade-off nobody escapes

Payment terms are a straight transfer of risk between the two parties, and every step that makes the seller safer makes the buyer less safe. Cash in advance eliminates the seller's risk entirely and asks the buyer to pay for goods they have not seen. Open account does the reverse. Everything else sits between.

The letter of credit exists precisely to break that deadlock: a bank substitutes its own creditworthiness for the buyer's, paying the seller against documents that prove shipment. It is not free — bank charges, and a discipline of documentary exactness that catches out first-time exporters. Industry experience is that a large share of LC presentations are rejected on first submission for discrepancies, often trivial ones like a spelling variation between the invoice and the bill of lading. The bank pays against documents, not against goods, and a document that does not match the credit exactly is grounds for refusal.

The middle ground

Documentary collections (D/P and D/A) are cheaper than an LC and carry no bank guarantee. Under D/P the buyer must pay to obtain the documents that release the cargo. Under D/A they only have to accept a time draft — meaning the seller has surrendered control of the goods against a promise. If the buyer then refuses or delays, the seller has a container sitting at a foreign port accruing demurrage, with limited practical remedies.

Common comparisons worth understanding

EXW versus FCA

The practical difference is export clearance. Under EXW the buyer must clear the goods for export from the seller's country — something a foreign buyer often cannot legally do, having no presence or tax registration there. FCA moves that obligation to the seller, who can actually perform it. This is why trade bodies routinely advise FCA over EXW for international sales.

FOB versus FCA

FOB passes risk when goods are loaded on board the vessel. For containers that moment never really happens under the seller's control — the container is handed to a terminal days earlier. FCA passes risk at that handover, which is what actually occurs. Using FOB for containers creates a period where the goods are out of the seller's hands but still at the seller's risk.

CIF versus DAP

Both have the seller paying for main carriage, but under CIF risk passes at origin loading, while under DAP the seller carries risk all the way to the named destination. DAP is far more protective for the buyer, and correspondingly more demanding of the seller.

1. Incoterms 2020 in plain terms

Incoterms are eleven three-letter rules published by the International Chamber of Commerce that define who arranges and pays for each stage of an international shipment, and — separately — where risk of loss transfers. They do not cover title, payment terms, or what happens if the goods are defective. They are shorthand for logistics obligations, nothing more.

Four rules are sea-only: FAS, FOB, CFR and CIF. The other seven work for any mode. The eleven divide into groups by how much the seller takes on, running from EXW (seller does almost nothing beyond making goods available) to DDP (seller does everything including paying import duty).

The critical distinction is between cost and risk. Under the C-group rules — CFR, CIF, CPT, CIP — the seller pays for carriage to the destination but risk transfers at origin. The seller buys the ticket; the buyer owns the cargo for the journey.

2. How duty and import tax are calculated

Worked example. You import goods invoiced at $50,000, with $3,000 freight and $500 insurance. Duty is 6.5% and import VAT is 20%.

• Customs value on the CIF basis: 50,000 + 3,000 + 500 = $53,500
• Duty at 6.5%: $3,477.50
• VAT base — value plus duty: 53,500 + 3,477.50 = $56,977.50
• VAT at 20%: $11,395.50
• Broker, port and delivery: $1,250
• Total landed: $69,623 — a multiplier of 1.39 on the invoice

If you are VAT registered, that $11,395.50 is recoverable, so your real cost is $58,227.50. The duty is not recoverable. Note also that the United States generally assesses duty on the FOB value — goods only — which on this shipment would give $3,250 of duty instead of $3,477.50.

Getting the classification right

Duty rates hang entirely on the commodity code assigned to your product, and codes are more specific than people expect — material composition, function and processing state all matter. Misclassification is your legal responsibility even when a broker files the entry, and penalties for getting it wrong can substantially exceed the duty avoided. If a code is ambiguous, most customs authorities issue binding rulings.

3. Freight pricing and chargeable weight

Worked example. One box, 120 × 80 × 100 cm, weighing 150 kg, moving by air.

• Volume: 120 × 80 × 100 = 960,000 cm³, or 0.96 m³
• Volumetric weight at divisor 6000: 960,000 ÷ 6000 = 160 kg
• Actual weight: 150 kg
• Chargeable weight: 160 kg — you pay for 10 kg of air

By express courier at divisor 5000 the same box is charged at 192 kg. By sea LCL it is 0.96 revenue tons, since cubic metres exceed the 0.15 tonnes of actual weight.

The break-even density at the 6000 divisor is about 167 kg per cubic metre. Below that, you are charged on volume; above it, on weight. Knowing which side of that line your product sits on tells you immediately whether reducing packaging size or reducing product weight is the more useful cost lever.

4. Filling a container properly

A 40 ft high cube gives roughly 76 m³ and about 28,600 kg of payload. A 60 × 40 × 40 cm carton is 0.096 m³, so around 600 fit by geometry in a simple block stow — using roughly 58 m³ and, at 15 kg each, 9,000 kg. That container is volume-limited with two-thirds of its weight capacity unused.

Reverse the situation with dense cargo: 40 × 40 × 40 cm cartons at 120 kg each hit the 28,200 kg payload of a 20 ft container after 235 cartons, occupying only about 15 m³ of the 33 available. Whichever limit arrives first is the one that determines your shipping cost per unit.

Two practical points. A 40 ft container holds roughly double the volume of a 20 ft but only marginally more weight, so dense cargo often ships more economically in two 20 ft units. And road weight limits at either end of the journey may restrict you well below the container's rated payload — a container legally loaded at sea can be illegal on the road.

5. Getting paid

The spectrum runs from cash in advance (all risk on the buyer) to open account (all risk on the seller), with letters of credit and documentary collections in between. A letter of credit substitutes a bank's promise for the buyer's, which is why it remains standard for first transactions and high-value trades with unfamiliar counterparties.

The discipline an LC demands is documentary precision. Banks check documents against the credit terms, not goods against the contract. A description that reads "steel brackets" on the invoice and "steel bracket" on the bill of lading can be a discrepancy. Discrepancies are common on first presentation, and each round of correction costs days and fees — so read the credit carefully the moment you receive it, and ask for amendments before you ship, not after.

6. The documents

The bill of lading deserves particular attention. An original negotiable B/L is a document of title — whoever holds it can claim the cargo. That is what makes documentary collections work, and it is also why originals are couriered carefully and why telex release exists for shipments where the paperwork would arrive after the vessel.

7. Costly mistakes

• Pricing from the invoice value. Landed cost is routinely 20–50% higher.
• Using FOB for containers. FCA is the rule that matches what physically happens.
• Quoting a price without an Incoterm. The number is meaningless on its own.
• Assuming the seller's insurance is adequate under CIF. It is minimum cover unless you specify otherwise.
• Forgetting VAT is charged on the duty. The tax base includes it.
• Quoting freight from actual weight. Volumetric weight often governs.
• Agreeing DDP without checking registration. The seller may not legally be able to clear and pay import duty in the destination country.
• Ignoring the currency spread. 2.5% on rate is usually larger than every visible fee combined.

None of this is customs, legal or tax advice. Duty rates, valuation rules, licensing requirements and tax treatment vary by country and by product, and they change. Confirm your specifics with your customs authority, a licensed broker, or a trade adviser before committing to a shipment.