How to calculate landed cost, step by step

Landed cost is the total cost of getting a product to your door, ready to sell or use. The supplier’s invoice is only the starting point; freight, insurance, duty, government fees, brokerage and inland transport all add to it. If you price or compare suppliers on the invoice alone, you can easily overstate your margin. This guide walks through the calculation step by step for a US import, using hypothetical numbers.

The landed cost formula

Landed cost = goods value + freight + insurance + duties + fees + inland transport
Landed cost per unit = total landed cost ÷ units received

The formula is simple addition. The work lies in making sure every cost is included, that each is assigned to the right shipment and that the duty is calculated on the right value.

Step 1: start with the goods value and your Incoterm

Take the supplier’s price for the quantity shipped. Then check the Incoterm on the order, because it decides which costs are already in that price. Under FOB, the supplier pays to load the goods onto the vessel at the origin port, and you pay the ocean freight and everything after it. Under CIF, the supplier also pays freight and insurance to the destination port. Under EXW, you pay for almost everything from the supplier’s premises. The International Trade Administration’s guide to Incoterms summarizes who pays for what under each rule.

Step 2: add international freight and insurance

Add the freight invoice for the main leg, by sea or air, unless the seller has already paid it under your Incoterm. Include any surcharges the forwarder bills, such as fuel or peak-season charges. Add cargo insurance if you buy it separately.

When one container carries several products, you need a rule for sharing the freight. Allocating by volume suits light, bulky goods; allocating by weight suits dense goods; allocating by value is simplest but can distort the cost of cheap, bulky items. Whatever rule you choose, apply it consistently. Our container load calculator gives the volume per carton if you allocate by CBM.

Step 3: calculate customs duty

Find the product’s classification and duty rate in the Harmonized Tariff Schedule. Then apply the rate to the customs value. In the United States, the customs value is generally the transaction value of the goods, which normally excludes international freight and insurance, so a CIF price may need adjusting. Other countries often value goods on a CIF basis instead. Check the basis with your customs broker, and see CBP’s guidance on determining duty rates.

Remember to include any additional duties that apply to your product’s country of origin. These can change at short notice, so date-stamp the rate you used. Our tariff cost calculator shows how a rate change affects your unit cost and margin.

Step 4: add government fees

Formal US entries usually carry a Merchandise Processing Fee (MPF), calculated as a percentage of the value with a minimum and maximum per entry, set out in 19 CFR 24.23. Ocean shipments through US ports usually carry a Harbor Maintenance Fee (HMF), described in 19 CFR 24.24. Your broker’s entry summary shows the exact amounts, and the MPF limits are adjusted periodically.

Step 5: add brokerage, port and inland costs

Add the customs broker’s fees, any port or terminal charges, and the cost of moving the goods from the port to your warehouse (drayage or inland freight). If the goods wait at the terminal, add any storage or demurrage charges too.

Step 6: total it and divide by units received

Add every cost for the shipment and divide by the number of sellable units received. If some units arrive damaged or short, divide by what you can actually use; otherwise the unit cost is understated.

Worked example (hypothetical numbers)

A business imports 1,000 units at $8.00 each on FOB terms, by sea, into the United States. The duty rate used here is 5%, applied to the goods value.

CostAmount
Goods value (1,000 × $8.00)$8,000
Ocean freight$1,200
Cargo insurance$40
Duty (5% × $8,000)$400
MPF and HMF (from the broker’s entry summary)$45
Customs brokerage$150
Drayage to the warehouse$350
Total landed cost$10,185

Landed cost per unit is $10,185 ÷ 1,000 = $10.19, about 27% more than the $8.00 supplier price. In this example, freight alone adds more than the duty does, which is common for low-value, bulky goods. All of these figures are invented to illustrate the method; your own costs will differ.

Common mistakes

  • Using the quoted freight rate instead of the final invoice. Surcharges and accessorial charges often appear only on the final bill.
  • Applying duty to the wrong value. In the US, adding international freight to the duty base overstates the duty.
  • Forgetting the domestic leg. Drayage and inland freight can be a large share of the total for short ocean routes.
  • Leaving out shrinkage. Damaged and short-shipped units raise the cost of the good ones.
  • Using an old duty rate. Check the schedule for every new shipment while rates are changing.

How to use landed cost

Once you know the landed cost per unit, you can set prices that protect your margin, compare suppliers in different countries on equal terms and see how much a change in freight or duty would cost you. Run your own numbers in the landed cost calculator, or track several products over time in the landed cost dashboard.

Additional sources

Related guides: practical ways to reduce tariff exposure, reshoring vs nearshoring, supplier diversification plan, and procurement and tariff guide.

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