The price on a supplier's quotation is rarely what the goods actually cost you. By the time they reach your warehouse, freight, insurance, duties, taxes, and a series of charges have been added. Landed cost is the total cost of getting imported goods to your door. Calculating it properly is the only way to compare suppliers fairly and price your own products correctly.
The Components of Landed Cost
1. Product Cost
The supplier's price for the goods, on the Incoterm quoted — for example FOB Shanghai.
2. International Freight
Sea or air freight from the supplier's port or airport to yours. Under CFR or CIF terms, this is included in the supplier's price.
3. Insurance
Cargo insurance for the journey. Under CIF, the supplier arranges minimum cover; you may want more. See cargo insurance guide.
4. Customs Value
In many countries, including Pakistan, duties are generally calculated on the customs value of the goods — commonly based on the CIF value (cost, insurance, and freight). Local rules on valuation can include adjustments.
5. Duties and Taxes
These may include customs duty and other duties, sales tax or VAT, and withholding taxes, depending on the country and product. Some taxes are recoverable if you are registered; others are true costs. In Pakistan, duties and taxes vary by PCT code and can include several layers. See how to import into Pakistan.
6. Clearing and Port Charges
- Clearing agent fees
- Terminal handling charges
- Delivery order and documentation charges
- Examination charges if goods are inspected
- Storage or demurrage if clearance is delayed
7. Inland Transport
From the port or dry port to your warehouse.
8. Finance and Bank Charges
- LC or bank transfer charges
- Interest on money tied up in the goods
- Currency conversion costs
9. Other Costs
- Pre-shipment inspection — see pre-shipment inspection guide
- Testing and certification
- Sourcing agent fees
- Wastage, breakage, or quality losses
A Worked Structure
| Line | Example basis |
|---|---|
| Product cost (FOB) | Supplier invoice |
| + Sea freight | Forwarder quote |
| + Insurance | Insurance premium |
| = CIF value | Basis for duty in many systems |
| + Customs and other duties | CIF value × applicable rates |
| + Non-recoverable taxes | As applicable |
| + Clearing and port charges | Agent and terminal invoices |
| + Inland transport | Trucking quote |
| + Finance and bank charges | Bank quote and interest |
| + Other costs | Inspection, testing, fees |
| = Total landed cost | |
| ÷ Units | Landed cost per unit |
💡 Compare suppliers on landed cost, not unit price
A supplier with a lower FOB price but a longer, more expensive shipping route, higher duty rate (no FTA origin), or poorer quality can cost more in total. Always compare landed cost per usable unit.
Currency
If you pay in foreign currency, convert at a realistic rate — including a buffer for movement between order and payment. See currency risk for exporters — the same principles apply to importers.
Allocating Costs Across Products
When a shipment contains several products, allocate shared costs (freight, clearing) by value, weight, or volume — whichever best reflects reality. Duties are usually calculated per product line based on its classification.
Keep It Updated
Freight, duty rates, and exchange rates change. Recalculate landed cost for each shipment and review your selling prices accordingly.
Frequently Asked Questions
What is included in landed cost?
Landed cost includes the product price, freight, insurance, duties and taxes, clearing and port charges, inland transport, finance and bank charges, and other costs such as inspection and testing.
Is import duty calculated on FOB or CIF value?
In many countries, including Pakistan, duty is generally calculated on a customs value based on the CIF value. Some countries, such as the US, use a value that excludes international freight and insurance.
Why is landed cost important?
It shows the true cost of imported goods, allowing fair comparison between suppliers and correct pricing of your own products.
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