# Landed Cost: The Formula, the Incoterms, and What You Miss

> What landed cost includes, which Incoterms decides who pays, why the duty base is usually CIF, and how volumetric weight can quadruple a freight bill.

Source: https://toolpantry.app/blog/landed-cost-formula-incoterms

Land the same 500 units at $2.40 each and the cost at your door is $24.89 a unit — 10.4 times the factory price. The difference is not margin and it is not the supplier. It is freight charged on volume, duty charged on a base that already includes freight, and a term that decided who pays.

## Quick answer

**Short answer:** landed cost is **goods + freight + insurance + duty + import tax + clearance**, divided by the units. Duty is often charged on the **CIF value** (goods + freight + insurance), and the import tax on that plus the duty. The charge most people miss is **volumetric weight**: air freight and couriers bill the greater of the actual weight and volume in cm³ ÷ 6000, so light, bulky products cost far more to move than their weight suggests.

## What landed cost actually is

Landed cost is everything you pay to get a product from the factory to your door, divided by the number of units. Not the factory price — that number is the start of the calculation, not the end of it.

The arithmetic is:

**goods value + freight + insurance + duty + import tax + clearance and destination charges**

How far that is from the factory price surprises people. Take a shipment of 500 units at $2.40 each, three kilos and 0.05 m³ apiece, shipped by air at $2.00 per kilo, with 8 % duty and 20 % VAT:

| Line | How it is worked out | Amount |
|---|---|---|
| Goods value | 500 × $2.40 | $1,200.00 |
| Freight | 4,167 kg chargeable × $2.00/kg | $8,333.33 |
| Insurance | 0.3 % of the goods value | $3.60 |
| CIF value | goods + freight + insurance | $9,536.93 |
| Import duty | 8 % of the CIF value | $762.95 |
| Import VAT | 20 % of (CIF + duty) | $2,059.98 |
| Clearance | Broker and destination charges | $85.00 |
| **Landed total** | per unit: $12,444.87 ÷ 500 | **$24.89 per unit** |

The landed unit cost is **10.4 times the $2.40 factory price**. A business that priced at factory cost plus a 30 % margin would lose money on every single unit it sold, and the number that did it was a line in the freight quote.

## Which Incoterm decides who pays

The trade term you put in the contract decides where the seller's responsibility ends and yours begins. The Incoterms® 2020 rules define eleven of them; these four cover most shipments.

| Term | Seller pays up to | You still pay |
|---|---|---|
| EXW (Ex Works) | The goods are waiting at the factory | Everything: export clearance, port charges, carriage, insurance, duty, tax and delivery |
| FOB (Free On Board, sea) | The goods are on board the ship | Carriage, insurance, duty, tax and delivery |
| CIF (Cost, Insurance and Freight, sea) | Carriage and insurance to the destination port | Duty, tax, clearance and delivery |
| DDP (Delivered Duty Paid) | Everything, to your door, including import duty and tax | Nothing beyond the goods themselves |

Two things the ICC itself points out. **EXW is really meant for domestic sales** — it leaves the buyer with the most risk and the most paperwork, and the ICC's own checklist advises small exporters to avoid it. And DDP, while it makes the buyer's life easiest, is the term where you take on the most risk yourself, including the import clearance that can be refused for paperwork reasons.

DAP sits between CIF and DDP: the seller delivers to your door ready for unloading, but **you** pay the import duty and handle the customs formalities.

## The base the duty is charged on

In many jurisdictions the duty is charged on the **CIF value** — goods plus freight plus insurance — not on the factory price. The import tax is then charged on CIF plus the duty itself, so the two taxes compound.

That is the rule in plenty of countries, but it is not universal: the basis can be the transaction value, the FOB value or the CFR value depending on the country and the tariff line, and the forwarder or the customs broker is the one who can tell you which applies to your shipment. Our [landed cost calculator](https://toolpantry.app/landed-cost-calculator) lets you switch the basis between the common options, precisely because the honest answer is "ask".

## The charge most people miss: freight is charged on volume

Air freight and express couriers do not bill on the weight of the carton. They bill on **chargeable weight**, which is the greater of the actual weight and the **volumetric weight**:

```
volumetric weight (kg) = length × width × height in cm ÷ 6000
```

The 6000 divisor is the IATA convention, and it encodes a ratio of about **167 kg per cubic metre**. Most express couriers use **5000** instead, which charges bulky cargo about 20 % more — so the divisor is worth confirming with your carrier before you quote a price.

Sea freight has the same idea in a different unit: it is charged per tonne or per CBM, **whichever is greater**, with 1,000 kg treated as 1 m³.

Back to the example. The 500 units weigh 1,500 kg in total, but they take up 25 m³, which is a volumetric weight of 25,000,000 ÷ 6000 = **4,167 kg**. The freight bill follows the bigger number:

- **Billed on volumetric weight:** 4,167 kg × $2.00 = $8,333.33, landed unit cost $24.89
- **Billed on actual weight:** 1,500 kg × $2.00 = $3,000, landed unit cost $11.07

One rule about how a product is packed moved **$6,912** on a single shipment, or $13.82 per unit. A pillow, a mug, a bottle of shampoo and a laptop charge very different amounts to move, and the ratio that decides it is how much air is in the box.

## Leave a margin for the things that move

Two costs in the calculation are estimates rather than quotes. The insurance rate: the common practice is to insure the CIF value plus ten per cent, and 0.3 % of the goods value is a reasonable average, but the real premium depends on the cargo, the carrier and the insured value. And currency: a 3–5 % buffer covers a rate move between quoting and paying. A landed cost computed to the cent is a spreadsheet, not a quote.

One more that belongs in the same list: a product that is light and bulky can be priced competitively against one that is heavy and small. If your unit cost is 10.4 times the factory price, the answer is often not a better supplier — it is less packaging.

## Run the numbers

The [landed cost calculator](https://toolpantry.app/landed-cost-calculator) takes the quantity, unit price, freight, insurance, clearance, duty and tax, with the duty and tax bases switchable, and shows the landed total per unit next to the factory price. It runs in your browser, so the figures never go to a server.

What it deliberately does not do: it does not look up an HS code or a duty rate for you, it does not know any carrier's current price list, and it does not classify goods for customs. The numbers you put in are the numbers a forwarder or a broker gave you; the calculator's job is to show you what those numbers mean for your unit price, and to make the gap between the two impossible to miss.

## Notes

Written by the Tool Pantry team on 22 October 2026. The Incoterms® allocations follow the ICC's Incoterms® 2020 rules and its official checklist; the cost allocation table follows the ICC's published framework. Duty and tax bases vary by country and tariff line — the examples here use a common CIF basis and the forwarder or broker is the one who confirms yours. The worked shipment is arithmetic we did ourselves, with stated assumptions.

## FAQ

**What is included in a landed cost?**

The goods value, freight, insurance, import duty, import tax, and clearance or destination charges. The number that matters is the landed total divided by the number of units — not the factory price, which is only one line of it.

**Which Incoterm should I use?**

It depends on who you want to carry the risk. EXW leaves everything with the buyer and the ICC advises against it for international sales. FOB is the common sea-freight default. CIF adds freight and insurance to the seller's scope. DDP puts everything, including import duty, on the seller. DAP is the middle: the seller delivers to your door, you pay the duty.

**Is duty charged on the factory price or on CIF?**

In many countries it is charged on the CIF value — goods plus freight plus insurance — and the import tax is then charged on that plus the duty. But the basis varies by country and tariff line, and it can be FOB, CFR or transaction value. Ask your forwarder or broker which one applies to your shipment.

**What is volumetric weight?**

The weight a shipment is billed on when it is bulkier than it is heavy: length × width × height in cm ÷ 6000 under the IATA convention, which is about 167 kg per cubic metre. Most express couriers use 5000 instead. Chargeable weight is the greater of the actual weight and the volumetric weight.

**How much should I add for currency and insurance?**

A 3–5 % buffer covers a currency move between quoting and paying. Insurance is commonly quoted as the CIF value plus 10 % multiplied by the rate; 0.3 % of the goods value is a reasonable average for a first estimate, but the real premium depends on the cargo and the carrier.

**Does the calculator look up duty rates for me?**

No, and deliberately. It does not classify goods, find an HS code, or know a carrier's price list. The duty rate and the freight come from your forwarder or broker; the calculator shows you what they mean for your unit price.