Last updated on May 20th, 2020 -
If you have previous experience with international orders or done any research on selling abroad, you’ve no doubt come across the words – “duty and tax”. But how many times have you seen the term: “landed cost”?
Let’s help you decode cross border as we explain the essential facts about landed cost that no one’s been telling you.
1. Landed cost is more than just duty and tax.
When it comes to international commerce, most people assume you only need to worry about the duty and tax. But these two types of fees just barely scratch the surface of what you’re really dealing with. Landed cost is the sum of the original purchase price for the product plus duty, taxes, and other export or import fees. Below we will break down what these fees actually entail.
When it comes to landed cost, you have to consider the following:
- Import taxes will vary by the country destination and region. Long story short is that each country taxes differently, has different names for their taxes (VAT, GST, HST, PST, QST, etc.), and sets their own tax rules and regulations. Sometimes, tax may not even be applied if it’s under a tax de minimis threshold.
- Duty rates will not always be applied based on the duty de minimis threshold. Sometimes, only a tax is applied to an import and not the duty, but the opposite is not the case as countries don’t generally set a lower duty threshold and a higher tax threshold.
Additional clearance fees also vary by country, carrier, carrier service level, and currency. These include the DDP (Delivery Duty Paid) service fee, brokerage fee, advancement fee, additional line item fee, C.O.D. (Collect on Delivery) collection fee, and other fees from the carrier or customs.
- DDP (Delivery Duty Paid) service fee – Some carriers charge this fee to you, as the shipper.
- Brokerage fee – The carrier may charge this fee, depending on the carrier service level. This is for special transactions or services a company is providing on your behalf (acting as your “broker”). This goes by different names, e.g. “entry preparation fee” or “clearance entry fee”.
- Advancement fee – The carrier charges this when they must pay duty and tax in advance on a customer’s behalf or when certain countries require duty and tax to be paid prior to clearing customs. This is another fee that can take multiple forms, e.g. “bond fee, disbursement fee, or payment deferment”, depending on which shipping carrier you’re talking to.
- Additional line item fee – A line item fee will be charged for certain destination countries. This occurs when a commercial invoice exceeds a predetermined amount of line items. For example, UPS charges JPY 400 per additional tariff line exceeding 5 tariff lines into Japan.
- C.O.D. (Collect on Delivery) collection fee – This fee will apply for some orders that may ship DDU (Delivery Duty Unpaid), because some delivery methods like postal couriers don’t offer a DDP service.
- Other fees from the carrier or customs – There may be other fees in addition to those listed above that can be applied to order shipments. For example, the United States F.D.A. (Food and Drug Administration) may have fees applied to shipments with specific products.
2. Calculating landed cost is complicated.
A ridiculous amount of variables are taken into account to accurately calculate a single product’s journey across the border. If you think about the country/region, carrier, currency, and more that we’ve described above, it can feel super overwhelming to manually calculate landed cost. Just check out this landed cost guide (along with an Excel template) from IncoDocs to get an idea of how to do these calculations on your own. No matter how you slice it, doing manual calculations is a lot of work!
3. Sadly, most solutions do not calculate the total landed cost.
There are third-party shipping and fulfillment solutions out there that claim they can work out all the duties and taxes for your international shipments; but they fail to take the total landed cost into account. This is because they are not obligated to get it right. Inaccurate rates will cause discrepancies and lose you money in the long run if you work with a business that hides “hidden” fees from you and does not provide accurate rates.
4. Getting landed cost right is essential to international success.
Despite how difficult it is to get a landed cost, it’s still really important to get it right. UPS Trade Management Services VP, Bill Ansley says landed costs are the “Rubik’s Cube of shipping…it’s sometimes hard to solve, but important to get right. Estimate too high and lose sales, estimate too low and lose margin or risk upsetting your customers.” The more accurate you can be, the better it is for your international business and the faster it will be for shipments to clear customs.
5. You can automate landed cost calculations.
Ok, so you’re probably convinced now that getting a true and total landed cost is a hopeless endeavor. You’re likely thinking, “I’d rather not waste time trying to figure this out myself.” But did you know that the Zonos Landed Cost product can be used to automate this process? We audit our landed cost calculations on a monthly basis to ensure they’re the most accurate in the industry.
Thompson, B. (2018, September 14). How to Calculate the Landed Cost of Imported Goods? Retrieved from https://incodocs.com/blog/how-to-calculate-the-landed-cost-of-imported-goods-2/
UPS. (2016, November 3). Landed costs: Hard to solve but vital to get right. Retrieved from https://www.ups.com/us/en/services/knowledge-center/article.page?kid=aa36b831