Landed cost per unit is the invoice price plus freight, insurance, duty, brokerage, and port fees, divided by the number of units that clear customs. Leave out any one line and the margin you think you have is fiction.
The five lines that make up landed cost
Every landed cost has the same five lines, and the order matters because each one is calculated off a different base. The invoice price is what the supplier charges. Freight is what the carrier charges to move it, and insurance is usually a small percentage of the invoice plus freight. Duty is calculated on the customs value, which is generally the invoice price, and brokerage plus port fees are flat or per-entry charges that land on top.
The mistake is treating duty as a single number. Rates stack. A product from China can carry a most-favored-nation rate, a Section 301 surcharge, and a Section 232 rate on its steel content, each applied to a different value base. An importer who budgets one duty line and gets three will watch the margin evaporate at the port, after the goods are already on the water. Stack the rates before you place the order, not after the entry summary arrives.
Related reading on this site: LandedWatch and LandedWatch cover the neighbouring problems in more depth.
A worked example: 500 units from Vietnam
Take 500 units invoiced at 12 dollars each, 6,000 dollars in total. Ocean freight runs 1,400 dollars, insurance at 0.5 percent of invoice plus freight comes to 37 dollars. The HTS rate is 8 percent on the 6,000 dollar customs value, which is 480 dollars, and brokerage plus the merchandise processing fee add 210 dollars. Total landed cost is 8,127 dollars, or 16.25 dollars per unit against a 12 dollar invoice price.
That 4.25 dollar gap is the whole business. A retailer who priced the item at 19.99 dollars thinking the cost was 12 dollars believes the gross margin is 40 percent. At 16.25 dollars it is under 19 percent, before warehousing, pick and pack, returns, and payment fees. The formula is not paperwork. It is the difference between a product line that funds itself and one that quietly bleeds for a quarter before anyone notices.
The three costs importers forget
First is the merchandise processing fee, 0.3464 percent of value with a minimum of about 32 dollars and a cap near 634 dollars per entry. It looks trivial until you split a shipment across five small entries and pay the minimum five times. Consolidate entries where the rules allow it, and the fee stops being a rounding error.
Second is demurrage and detention. A container that sits at the port because the entry paperwork was late can rack up hundreds of dollars a day, and none of it appears in any duty calculation. Third is the cost of the second quantity. Some HTS lines require reporting by weight or count as well as value, and a wrong second quantity can hold an entry for days. None of these three show up in a supplier quote. All three show up in the per-unit number.
Frequently asked questions
How do I calculate landed cost per unit?
Add the invoice price, freight, insurance, duty, brokerage, and port fees, then divide the total by the number of units that clear customs. Use the customs value, not the retail price, as the base for duty.
Does landed cost include Section 301 and Section 232 tariffs?
Yes. Every duty that applies to the entry belongs in the calculation, including Section 301 surcharges and Section 232 rates on steel and aluminum content. Rates stack, so list each one separately before adding them up.
Should I use the supplier invoice price or the first sale price?
Use the transaction value, which is generally the price actually paid or payable. In a multi-tier chain the first sale rule can let you use the earlier sale price as the value base, but only when the sale is bona fide and at arm's length. Ask your broker before relying on it.
How often should I recalculate landed cost?
Every shipment. Freight rates move weekly, duty rates change by proclamation, and a new HTS classification can shift the rate overnight. A landed cost from last quarter is a guess, not a number.