Total landed cost
Total landed cost calculates all expenses required to get goods from a supplier's dock to your facility, including purchase price, freight, customs duties, insurance, and handling. Landed cost reveals the true acquisition cost, especially important for global sourcing where unit prices alone can mislead about actual total costs.
Examples
Import cost calculation: A component costs $10 from an Asian supplier. Landed cost adds: ocean freight ($0.80), customs duty at 5% ($0.50), customs brokerage ($0.15), inland freight ($0.30), and insurance ($0.05). Total landed cost is $11.80, reducing apparent savings from 30% to 15%.
Supplier comparison: Two suppliers quote similar unit prices, but one ships from a nearby facility while the other ships from overseas. Landed cost analysis reveals the overseas supplier costs 18% more when all logistics costs are included.
Duty optimization: Landed cost analysis identifies that shipping finished goods incurs higher duty than importing subcomponents for final assembly. Restructuring the supply chain to assemble domestically reduces total landed cost despite higher labor.
Definition
Landed cost matters most in global sourcing where significant costs occur between supplier quote and receipt at your facility. Purchase price comparisons without landed cost adjustment can lead to poor sourcing decisions.
Landed cost components typically include: product cost, freight and shipping, customs duties and tariffs, customs brokerage fees, port handling charges, insurance, inland transportation, and any special handling requirements. Currency exchange is also a factor for international purchases.
Calculating landed cost requires knowing duty rates, shipping costs, and ancillary fees. This information comes from freight forwarders, customs brokers, and internal logistics teams. Some organizations maintain landed cost calculators to standardize these estimates.
Landed cost should be distinguished from total cost of ownership. Landed cost focuses on acquisition, getting goods to your facility. TCO includes ongoing costs throughout the ownership period. Both concepts matter, but address different questions.
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