Key Takeaways
- Evaluating profit margins using FOB/EXW pricing without factoring in taxes and local trucking leads to hidden losses.
- Always verify the exact HS code to calculate actual duty and tax rates before placing orders.
- Allocate fixed import costs (such as D/O fees and documentation) across unit counts.
The Formula for Calculating Landed Cost
The standard formula is: Landed Cost = Product Cost + Shipping + Customs + Risk + Overhead. Importers often fail because they forget to distribute fixed import fees across low-volume orders. This raises the unit cost significantly compared to shipping a full container (FTL).
Why You Must Calculate Landed Cost Before Ordering
Understanding Landed Cost beforehand allows you to price your products accurately in the market. If your calculation shows the landed cost is close to local retail prices, you may need to increase your order volume to reduce unit shipping costs or request a Certificate of Origin (Form E) to obtain tax exemptions.
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Contact Our Experts NowCost Allocation Methods: Weight vs. Value
Import expenses can be distributed across products using two primary methods: weight-based allocation (ideal for heavy commodities) or value-based allocation (suited for varied goods). Choosing the right method ensures that accounting and procurement teams track gross margins correctly.
Official Reference Agencies and Regulations
- Thai Customs Department: Reference under the Customs Act B.E. 2560 and related cross-border transit regulations.
- International Chamber of Commerce (ICC): Incoterms 2020 rules governing international shipping liabilities and transport terms.
Landed Cost represents the total cost of an imported product once it is delivered to the final warehouse. It consists of 5 components: 1. Product price (Invoice value). 2. International shipping (Freight). 3. Customs duties and import VAT. 4. Cargo insurance. 5. Local delivery and terminal fees (local charges, customs broker, and trucking).
Frequently Asked Questions
Q: How should I allocate local import fees for mixed cargo?
A: Use value-based allocation if item values vary significantly, but use weight-based allocation if shipping rates are charged primarily by weight and item weights differ widely.
Q: Should import VAT (7% in Thailand) be included in Landed Cost?
A: If your company can reclaim or offset import VAT as input tax, it is typically excluded from product cost but should be tracked as a cash flow component.
