Landed cost is the total cost of getting a product from the supplier's door to yours, ready to sell. It is the purchase price plus every charge incurred along the way. Most teams capture freight and stop there, which quietly understates cost of goods and inflates reported margin. The fix is to identify each component and decide how it gets allocated to the individual products in the shipment. If you want to model the numbers before you commit, the free landed cost calculator lets you enter a shipment and see the per-unit cost build up component by component.
Freight and shipping (inbound)
Inbound freight is the cost of physically moving goods from the supplier to your warehouse: ocean or air carriage, the trucking on either end, and any fuel or surcharge lines on the carrier bill. Under most Incoterms[1] other than DDP, the buyer carries some or all of this, so it belongs in your cost, not the vendor's.
Freight is most commonly allocated by volume or weight, because that is what actually drives the carrier charge. A dense, heavy SKU should absorb more of an ocean bill than a light one sharing the same container. Where weight data is missing, teams fall back to allocating freight by value, which is simpler but can overstate the cost of expensive, compact items.
Customs duties and tariffs
Duties and tariffs are taxes a government levies on imported goods, calculated from the product's classification code and its customs value. The rate is set per commodity, so a single shipment can carry several different duty rates at once. These are real, unrecoverable costs (unlike refundable import VAT or GST in many regimes) and must land on the product.
Because duty is assessed per line item against each product's declared value, it is best allocated directly to the specific SKU it was charged on rather than spread evenly. When you only have a single blended duty figure, allocating it by value is the closest approximation, since the duty base itself is value-driven. The US Customs and Border Protection[2] guidance explains how value and classification determine what you owe.
Insurance in transit
Cargo insurance covers loss or damage while goods are in transit. Premiums are usually quoted as a percentage of the insured value of the shipment, which makes it a small but persistent line that teams routinely forget to push into product cost. Even when a freight forwarder bundles it, it is a separate, allocable charge.
Since the premium is calculated on declared value, transit insurance is naturally allocated by value: the higher-value goods carry more of the premium because they represent more of the insured risk. This keeps the allocation consistent with how the insurer priced the cover in the first place.
Customs brokerage and clearance fees
A customs broker files the entry, classifies goods, and clears the shipment on your behalf, and charges a fee for it. Alongside the broker's fee sit clearance-related charges such as entry filing, bond fees, and document handling. These are administrative costs of importing, but they are still part of getting the goods to your door, so they belong in landed cost.
Brokerage fees are typically a fixed charge per shipment or per entry rather than per item, so the cleanest allocation is to spread them across the shipment by quantity (an equal share per unit) or by value when units vary widely in worth. The choice matters most when a shipment mixes a few high-value items with many cheap ones.
Port, handling, and demurrage / storage charges
Port and terminal handling fees cover loading, unloading, and moving containers at each port. The expensive surprise is demurrage and detention: penalty charges that accrue when a container sits beyond its free time at the terminal or is held too long after pickup. A clearance delay or a missed truck appointment can turn a routine import into a costly one overnight.
Handling fees relate to the physical container, so they allocate well by weight or volume, mirroring freight. Demurrage and storage, being penalties tied to the whole shipment's delay rather than any one product, are usually spread by value or by quantity across everything in the affected container. Either way, leaving them out hides a cost that can dwarf the freight bill.
Currency conversion and payment / financing fees
When you buy in a foreign currency, the rate your bank applies, plus its conversion spread and wire fees, changes what the goods actually cost in your home currency. Letters of credit, factoring, and the financing cost of paying a supplier long before you sell the stock add a further layer. These fees are easy to bury in the finance ledger and never trace back to the product.
Conversion and financing fees scale with the amount paid, so they allocate naturally by value across the shipment. The practical discipline is to record the actual landed exchange rate and bank charges on the import, rather than the headline rate, so the cost reflects what truly left your account.
Allocation methods and why per-unit landed cost matters
Across all six components, three allocation methods do most of the work. Allocating by value spreads a cost in proportion to each product's purchase value, which fits charges that scale with worth: duty, insurance, currency, and financing. Allocating by weight (or volume) fits costs driven by mass or space, mainly freight and handling. Allocating by quantity splits a cost evenly per unit, which suits flat, per-shipment fees like brokerage where neither value nor weight is the real driver.
The point of all this is the per-unit landed cost: the single number that tells you what one unit truly cost to put on the shelf. Price off the vendor invoice alone and you can sell at what looks like a healthy markup while actually losing money once freight, duty, and the quiet fees are counted. Per-unit landed cost is what should feed your selling price, your margin reports, and your inventory valuation. Run a representative shipment through the landed cost calculator to see how much each component moves the true cost of a unit.
References
- International Chamber of Commerce, Incoterms rules. Defines which party bears freight, insurance, and clearance at each stage of an international sale. iccwbo.org/business-solutions/incoterms-rules
- US Customs and Border Protection, importing basics. How customs value and classification determine duties and tariffs on imported goods. cbp.gov/trade/basic-import-export/internet-purchases
- Investopedia, Landed Cost definition. Overview of what landed cost includes and why it matters for pricing and margin. investopedia.com/terms/l/landed-cost.asp