What landed cost includes
The price on a factory quote is rarely what a garment costs you. Landed cost adds up everything you pay until the goods are in your warehouse:
- The goods: the unit price times the quantity, plus any extra charges such as samples, labels, packaging or set-up costs.
- Freight: shipping from the factory or port of export to your country, by sea, air or courier.
- Insurance: cover for the cargo while it travels.
- Import duty: a percentage of the customs value, set by the product's tariff code and where it was made.
- Customs and port fees: customs broker fees, port and terminal charges, and any government processing fees.
- Delivery: from the port or airport to your warehouse.
- Import taxes you cannot reclaim: if your business is not registered for VAT or GST, the import VAT or GST becomes part of your cost.
Add them up and divide by the number of pieces: landed cost per piece = total landed cost ÷ number of pieces. Spread shared costs like freight across the styles by weight or volume, not by value.
Delivery terms: what the quote includes
The delivery term on a quote, usually one of the International Chamber of Commerce's Incoterms rules, tells you which of those costs are already in the price. The current edition is Incoterms 2020.
| Term | The price includes | You still pay |
|---|---|---|
| EXW (Ex Works) | The goods, ready at the factory | Everything from the factory door |
| FCA (Free Carrier) | Delivery to your carrier, cleared for export | Main freight, insurance, import costs |
| FOB (Free On Board) | The goods loaded on the ship at the port of export | Sea freight, insurance, import costs |
| CIF (Cost, Insurance and Freight) | Sea freight and minimum insurance to your port | Import duty, taxes, fees, delivery |
| DAP (Delivered at Place) | Delivery to your address | Import duty, taxes and clearance |
| DDP (Delivered Duty Paid) | Delivery to your address with import duty and taxes paid | Usually nothing more |
A DDP quote is the easiest to compare, because it already is a landed cost. Ask who will be named as the importer, and whether you will get a document that lets you reclaim the import VAT or GST. Our guide on how to find a clothing manufacturer shows an FOB quote and a DDP quote side by side.
Duty is not charged on the same value everywhere
Duty is a percentage of the customs value, but countries disagree about what that value includes:
- United States: the price paid for the goods, excluding the cost of international freight and insurance to the US.
- Canada: the price of the goods including transport to the place they are shipped from, but not the journey to Canada.
- Australia and New Zealand: the goods value on a free-on-board basis, without international freight and insurance.
- United Kingdom: the goods plus transport, insurance and loading costs up to the UK border.
- European Union: the goods plus transport and insurance costs up to the place the goods enter the EU.
What 12% duty is charged on
US, Canada, Australia, New Zealand
Duty on the goods only: $720
UK and EU
Duty on goods, freight and insurance: $831.60
Two other rules catch new importers. In the US and the EU, if you supply the factory with materials free of charge, such as your own labels, fabric or trims, their value is added to the customs value. In the US, importers also pay a merchandise processing fee of 0.3464% of the value on formal entries, with a minimum and maximum that change each October, and a harbor maintenance fee of 0.125% on cargo arriving by ship.
A worked example
Here is one shipment of 500 hoodies at $12.00 each FOB, shipped by sea, landed in a country that charges duty on the goods value and in one that charges it on goods plus freight and insurance. The 12% duty rate and the fees are illustrative; your rate depends on the product and where it is made.
| Duty on goods value (US, CA, AU, NZ) | Duty on goods plus freight (UK, EU) | |
|---|---|---|
| Goods: 500 hoodies at $12.00 | $6,000.00 | $6,000.00 |
| Sea freight | $900.00 | $900.00 |
| Cargo insurance | $30.00 | $30.00 |
| Duty at an illustrative 12% | $720.00 | $831.60 |
| Customs broker and port fees | $150.00 | $150.00 |
| Delivery to your warehouse | $250.00 | $250.00 |
| Total landed cost | $8,050.00 | $8,161.60 |
| Landed cost per hoodie | $16.10 | $16.32 |
A $12.00 hoodie costs about $16 by the time it reaches you, roughly a third more. Price from that number, not the factory price. Our business plan guide shows how to turn a landed cost into a selling price and a margin.
Import VAT and GST
Most countries also charge their sales tax on imports, calculated on the customs value plus the duty:
| Market | Tax on imports | Charged on |
|---|---|---|
| United Kingdom | VAT 20% | Customs value, duty and costs to the first UK destination |
| European Union | VAT at the country's rate | Customs value, duty and costs to the first destination |
| Canada | GST 5%, plus provincial tax in some provinces | Value for duty plus the duty |
| Australia | GST 10% | Customs value, duty, and international transport and insurance |
| New Zealand | GST 15% | Customs value, duty, shipping and insurance |
| United States | No federal import VAT | Sales tax is charged when you sell, by state |
A business registered for VAT or GST can usually reclaim the import tax, and several countries let you account for it on your VAT return instead of paying it at the border; see our guides to the UK, Ireland and the Netherlands. If you cannot reclaim it, add it to your landed cost.
How to bring your landed cost down
- Choose the production country with the duty in mind. Clothing that meets a trade agreement's rules of origin can enter at 0%; our country guides for the US, UK, Canada, Australia and New Zealand compare the routes.
- Use the right tariff code. The code sets the duty rate; a knitted and a woven garment, or cotton and synthetic, can pay different rates.
- Ship by sea when the timeline allows. Air freight is faster but costs far more per kilogram.
- Pack efficiently. Freight is charged by volume or weight, so carton size and how garments are folded matter.
- Order fewer, larger shipments. Broker and port fees are partly per shipment, so they weigh more on small ones.
At Nevear the minimum is typically 50 pieces per item, and orders can reach around 50,000 pieces in a single shipment. Bulk orders usually arrive 3–4 weeks from the order date, shipping included. Tell us where you sell, and ask us which of our production countries, the US, the UK, Pakistan or China, suits your landed cost.