The price on the supplier's invoice is not what the product costs you. Landed cost — the total cost of getting a product from the factory floor to your warehouse — includes many additional expenses that significantly affect your margins.
Landed Cost Components
1. Product cost (FOB price)
2. Inland transportation (factory to port)
3. Customs duties at destination
4. Port handling and documentation
5. Ocean freight
6. Marine insurance
7. Destination port charges
8. Inland transportation (port to warehouse)
9. Inspection and agent fees
10. Any applicable taxes at destination
Example Calculation
For a $10,000 FOB order shipping to the US: customs duty (~3-8% depending on product) = $300-800; ocean freight = $2000-3500; insurance = $50-100; port charges = $200-400; inland transport = $300-600; inspection fees = $200-400. Total landed cost: approximately $13,000-15,000 — 30-50% above FOB price.
How to Optimise Landed Cost
- Negotiate FOB pricing aggressively
- Consolidate shipments to reduce per-unit freight costs
- Choose the right Incoterms for your situation
- Understand and minimise customs duties (correct HS codes, applicable trade agreements)
- Use efficient packing to maximise container space
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