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What Is Landed Cost?

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  • Written By: Jim B.
  • Edited By: M. C. Hughes
  • Last Modified Date: 07 November 2016
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The landed cost is the total cost of a business purchase when all of the factors that affect the overall amount the purchaser must pay are included. These excess costs are in addition to the actual price of the business, and can include shipping costs, duties or tariffs, insurance fees, inspection fees, and many others. Determining the landed cost of a purchase is most important to companies doing international business, since there are many extraneous costs associated with international business. Businesses must account for these costs and try to eliminate them or limit them as much as possible to make the most efficient purchases.

Many companies and businesses rely on outside sources for the purchase of the products that they sell. Ideally, they can keep the costs of purchases low so that they can price their items competitively upon resale. Doing this also allows them to improve their profit margin. When dealing with items that need to be shipped in from great distances, costs can escalate quickly. The landed cost of a purchase is the complete amount paid out by a business to complete the transaction and gain physical ownership of the product in question.

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When shipping things in from international locations, there are many costs which can arise that can factor into the overall landed cost. Shipping costs associated with the transport of a product from one place to another are the most obvious examples of these extra costs. Companies have to decide upon the most cost-effective way of shipping. For example, having an item transported via air freight means that it will arrive quickly, but it is also an expensive mode of transportation.

In addition to shipping charges, there are other costs which arise in international purchases that affect landed cost. Businesses sometimes purchase insurance to prevent against an item being damaged. Various tariffs and duties may be attached to purchases from specific countries. Inspections may be performed at certain customs points, which require fees to be paid. All of these seemingly insignificant charges can add up to a large amount.

As a result, it is important for business owners to understand all of the components of the landed cost and to try to limit these costs. Current conditions in the world may affect these purchases, like rising fuel prices which affect shipping or changing currency values which can have an effect on international prices. If a business can effectively limit the excess costs attached to purchases, it ultimately will experience benefits to its bottom line.

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everetra
Post 4

@hamje32 - The closest I ever came to having an import business was when I worked part time pawning off specialty merchandise.

Actually, I wasn’t directly importing the stuff myself. I worked with a corporation that was buying stuff, in large quantities, from overseas suppliers. I then could sell (or resell) that merchandise to people or retailers. I was a middleman so to speak.

Even though I was a middleman, I could still make a decent profit because the company still did well on keeping their costs low. I guess they kept their landed cost calculation to a level where their resellers could still make a profit.

I never stayed with the business, however, because the stuff I was selling was not completely unique. Retailers could find comparable merchandise by working directly with other suppliers, getting it at even lower prices than what I could offer as the middleman.

hamje32
Post 3

@SkyWhisperer - Yeah, if you’re traveling as a tourist you can usually find stuff dirt cheap in some countries, but it’s very difficult to make a profit when you add in those other import duties and things.

I think businesses have special arrangements. Furthermore, you have to be aware of current legislation or political pressures that could impact your business.

For example, there are those in this country who feel that China has an unfair advantage in its ability to sell stuff to us dirt cheap. These people argue that strong import tariffs should be levied against China to strip them of their edge, and give the United States a chance revive its manufacturing base.

You may be required not only to stay up to date on legal impacts to your business, but also to lobby your legislators as well to ensure that they pass legislation that is favorable to your business.

SkyWhisperer
Post 2

@NathanG - Yes, I lived in Indonesia for four years. You can get some really amazing bargains and the dollar is strong indeed.

When I returned to the states I had some Indonesian mahogany and teak desks shipped back. I didn’t exactly factor in landed costs or anything like that. It wasn’t a business shipment; I just had the airline ship it so that I could continue to own these fine pieces of furniture.

With all of the costs involved, I doubt I would have made a profit, but I wasn’t looking to sell it anyway. Personally, I wouldn’t want to be in an import or export business myself.

I think keeping up with all the currency fluctuations, import tariff or customs tariff costs would be too much of a hassle. It’s almost like day trading in the stock market, where you have to stay up to date by the minute to make sure that you make a profit.

NathanG
Post 1

I have a friend who owns an import business. He mainly imports furniture from Indonesia and a few other Asian nations. He travels quite frequently to various locales overseas, looking for the best bargains from merchants living off the beaten path.

He then arranges to ship these products to the states. I’ve never understood how he makes money because I believe that there is an import duty levied on those products, and there may be other costs as well.

Clearly, he knows what he’s doing however. He buys the stuff cheap enough so that when he factors in his landed cost calculation he is still able to make a profit. It helps that the dollar is very strong against the Indonesian rupiah so there is still some leeway to make a substantial profit even with other tariffs and shipping costs tagged on.

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