What is landed cost and why does it matter for importers?
Landed cost is the total cost of importing a product from a foreign supplier to your facility in the United States. It includes every expense incurred along the way: the product price, international freight, insurance, customs duties, tariff surcharges, and processing fees. Understanding landed cost is essential for accurate pricing, margin analysis, and sourcing decisions.
Many importers make the mistake of comparing product costs across suppliers without factoring in duty rates. A supplier in Vietnam might offer a lower unit price than one in India, but the total landed cost could be higher depending on the applicable tariff layers and freight costs. Only by calculating the full landed cost can you make an informed sourcing decision.
The formula is straightforward: Landed Cost = Product Cost + Shipping + Insurance + Duties + Fees. Each component must be calculated separately, and the duty component itself may involve multiple tariff layers (MFN, Section 301, Section 232, Section 122, IEEPA).
How do you calculate each component of landed cost?
Product cost is your FOB (Free on Board) price from the supplier. This is the cost at the port of origin before shipping. Shipping includes ocean or air freight, drayage, and inland transportation. For ocean freight, expect $3,000-$8,000 per 40-foot container depending on the route. Insurance is typically 0.3%-0.5% of the CIF (Cost, Insurance, Freight) value.
Duties are calculated on the customs value, which is generally the transaction value (price paid or payable) plus shipping and insurance costs to the U.S. port. Each tariff layer applies to this same customs value. The Merchandise Processing Fee (MPF) charged by CBP is 0.3464% of the customs value, with a minimum of $31.67 and a maximum of $614.35 per entry.
Harbor Maintenance Fee (HMF) applies to ocean shipments at 0.125% of the cargo value. Additional costs may include customs broker fees ($150-$250 per entry), bond premiums, and demurrage or detention charges. These should all be factored into your landed cost calculation.
What does a real landed cost calculation look like?
Consider a $10,000 FOB shipment of cotton t-shirts (HTS 6109.10.00) from China. Shipping by ocean freight costs $1,200. Insurance is $34 (0.3% of $11,200 CIF value). The customs value is $11,234.
Duty layers on this shipment: MFN rate of 16.7% = $1,876.08. Section 301 (List 4A) at 7.5% = $842.55. IEEPA 10% = $1,123.40. Total duties = $3,841.03. The Merchandise Processing Fee is $38.89 (0.3464% of $11,234). Harbor Maintenance Fee is $14.04 (0.125% of $11,234). Customs broker fee is $200.
Total landed cost: $10,000 (product) + $1,200 (shipping) + $34 (insurance) + $3,841.03 (duties) + $38.89 (MPF) + $14.04 (HMF) + $200 (broker) = $15,327.96. That means the landed cost is 53.3% higher than the product cost alone. The effective duty-inclusive cost per shirt (assuming 2,000 shirts) rises from $5.00 to $7.66.