How do you calculate total landed cost for international shipments?

1 Identify the cost components

Identifying all the cost components relevant for a shipment is the first step. Depending on the mode of transport, origin and destination countries, and terms of trade, these can vary significantly. Common cost components include freight charges, fuel surcharges, handling charges, customs duties, taxes, tariffs, fees, insurance, and currency conversion. Freight charges are fees charged by the carrier for transporting goods from one point to another. Fuel surcharges are additional fees charged by the carrier to cover fluctuation in fuel prices. Handling charges refer to fees charged by the carrier or terminal operator for loading, unloading, or transferring goods. Customs duties are taxes levied by customs authorities on import or export of goods. Taxes include value-added tax (VAT), goods and services tax (GST), or sales tax. Tariffs refer to fees charged by government for granting access to a specific market or sector. Fees include inspection fees, documentation fees, or license fees. Insurance covers the cost of insuring goods against loss, damage, or theft during transit. Currency conversion is the cost of converting invoice currency to payment currency.

2 Choose a calculation method

The second step is to choose a calculation method that suits your needs and preferences. There are two main methods for calculating TLC: the bottom-up method and the top-down method. The bottom-up method involves adding up all the cost components from the point of origin to the point of destination, which is more accurate and detailed but requires more data and time. On the other hand, the top-down method involves subtracting the cost of goods sold (COGS) from the selling price and dividing by the quantity, which is simpler and faster but may not capture all cost components and variations.

3 Gather the data

The third step in the cost calculation process is to gather the data for each cost component from various sources. This may involve consulting suppliers, carriers, brokers, agents, or online tools to ensure the accuracy and up-to-date information. Factors that can affect the data include the weight and volume of goods, which determine freight charges and space requirements in transport vehicles; the classification and description of goods, which determine customs duties, taxes, tariffs, and fees; incoterms that define seller and buyer responsibilities and obligations for delivery and payment; and exchange rate fluctuations that affect currency conversion costs and value of goods.

4 Perform the calculation

The final step is to perform the calculation using the data and the method you have chosen. You may use a spreadsheet, a calculator, or a software tool to help you with the calculation. The result is the TLC per unit of goods, which can be used for various purposes such as comparing different sourcing options, negotiating with suppliers and customers, optimizing logistics strategy, and evaluating profitability and performance. This will help you choose the most cost-effective option, set optimal price and terms, reduce logistics costs and risks, and identify areas for improvement.

5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?