Optimize your business: use unlimited savings with Pazago fulfilled now!

Get Started ->

As an exporter in India, you’re probably familiar with the challenge of setting the right price for your products. But there’s one often-overlooked factor that could be affecting your pricing strategy: landed cost.

You might wonder, "Why is this important to me?" Well, imagine trading goods and thinking you've accounted for everything—only to find out later that hidden costs eat into your profits. That's where the landed cost comes into play.

In this blog, we'll break down what landed cost is, why it's so important, and how you can calculate it accurately. By the end, you'll have a clear understanding of how to price your products properly, ensuring that you don't leave money on the table.

What is the Landed Cost?

Landed cost is the total cost of transporting a product to your warehouse or store from the supplier's location. It includes not only the purchase price but also the additional costs of transportation, customs, taxes, and handling.

Many businesses assume that the price quoted by a supplier is their actual cost, but that's rarely the case. If you're trading goods, your final expense may also include freight charges, insurance, import duties, and last-mile delivery costs. These extra charges can add up quickly, significantly increasing the actual cost of each product.

Now that we've defined landed cost, let's explore why it plays a crucial role in your business profitability.

Also Read: Guide to Various Types of Freight and Shipping Charges

Why is the Landed Cost Important?

Many businesses focus only on the supplier's price when calculating their costs. However, failing to account for the full landed cost can lead to pricing mistakes, unexpected expenses, and lost profits. Understanding your total cost helps you make better financial decisions and avoid surprises.

  1. Accurate Pricing and Profit Margins

If you don't calculate your landed cost correctly, you may underprice your products and cut into your profits. For example, if you assume a product costs ₹500 but the actual landed cost is ₹650, selling at ₹700 might seem profitable. However, after considering overhead expenses and taxes, your real profit may be much lower than expected.

  1. Preventing Unexpected Costs

You may often face hidden costs that can quickly add up. Customs duties, last-mile delivery charges, and handling fees can significantly increase the total cost of imported goods.

For example, if customs duties increase unexpectedly or a delay leads to extra storage charges at the port, your costs could rise beyond what you planned. Factoring in all potential expenses upfront allows you to budget properly and avoid last-minute financial strain.

  1. Comparing Supplier Costs Correctly

Two suppliers may offer similar products at different prices, but the cheapest option is not always the most cost-effective.

  • Supplier A offers a product at ₹450 per unit, but higher shipping and duty charges push the total landed cost to ₹700.
  • Supplier B sells the same product at ₹500 per unit but has lower shipping and duty charges, making the landed cost ₹680.

Even though Supplier A's base price is lower, Supplier B offers the better deal when factoring in all costs. Without knowing your full landed cost, you might choose the wrong supplier and pay more than necessary.

  1. Better Financial Planning

A clear understanding of landed cost allows businesses to forecast expenses accurately and maintain cash flow stability. If you plan your costs correctly, you can avoid running out of funds due to unexpected charges.

This is especially important for small and medium-sized companies with tight budgets and thin margins. Proper landed cost calculations help you negotiate better payment terms with suppliers and shipping companies.

  1. Avoiding Compliance Issues

Different products attract different import duties, GST rates, and compliance fees in India. Misclassifying a product or miscalculating customs duties can lead to delays, penalties, or even confiscation of goods. Calculating the landed cost correctly ensures that all regulatory expenses are factored in and paid correctly.

Knowing your landed cost is not just about profitability. It's about making smart, informed decisions. Next, we'll break down all the components that go into landing cost calculation.

Also Read: Mandatory User Charges in Container Tracking and Freight Shipping

Components of Landed Cost

To calculate your landed cost accurately, you need to account for multiple expenses beyond the supplier's price. These costs can vary based on the country of origin, the shipping method, and India's import regulations. Below are the key components that make up the total landed cost:

  1. Product Cost

This is the base price you pay to the supplier for the product. It's often listed on the supplier's invoice and may be quoted in different terms, such as:

  • EXW (Ex-Works): You pick up the goods from the supplier's location and cover all transport costs.
  • FOB (Free on Board): The supplier covers the cost of delivering the goods to the port, but you handle everything after that.
  • CIF (Cost, Insurance, and Freight): The supplier covers international shipping and insurance up to the port in India.

The product cost is only the starting point. The final landed cost is always higher.

  1. Freight and Shipping Charges

These are the costs associated with transporting your goods from the supplier's country to India. Depending on the shipping method, these charges can vary:

  • Air Freight: Faster but more expensive. Typically used for lightweight or high-value goods.
  • Sea Freight: Cheaper for bulk shipments but takes longer.
  • Courier Services: Used for small shipments, often more expensive per unit.

Shipping costs can also include:

  • Port handling fees (loading and unloading at ports)
  • Fuel surcharges (if applicable)
  • Customs clearance fees (paid to customs brokers or agents)

Freight charges depend on the weight, volume, and urgency of your shipment.

  1. Customs Duties and Import Taxes

When goods arrive in India, you must pay import duties and taxes based on the product category and HS (Harmonized System) code. Key charges include:

  • Basic Customs Duty (BCD): Varies depending on the product type.
  • Integrated Goods and Services Tax (IGST): Most imports are subject to different rates.
  • Social Welfare Surcharge (SWS): Additional charge on certain goods.

To find the exact duty for your product, you can check the Indian Customs Tariff or use the ICEGATE portal. Misclassifying your product can lead to penalties or delays, so it's important to calculate duties correctly.

  1. Insurance Costs

Insurance protects your shipment against damage, theft, or loss while in transit. Many businesses overlook this expense, but it's a small cost compared to the risk of losing an entire shipment.

Common types of insurance include:

  • Marine cargo insurance (for sea freight)
  • Air cargo insurance (for air shipments)
  • Transit insurance (for domestic transportation within India)

The cost of insurance depends on the shipment value, mode of transport, and risk factors. Some suppliers offer insurance as part of their CIF pricing, but it's always good to verify the coverage.

  1. Additional Fees

Several other expenses may contribute to your total landed cost, including:

  • Customs clearance agent fees: If you hire a customs broker to handle paperwork.
  • Storage and demurrage charges: If your shipment gets delayed at the port.
  • Bank charges: If you make international payments via wire transfer or letters of credit.
  • Local transportation: The expense of getting your goods from the port to your storage or distribution center.

These costs may not be obvious at first, but they can significantly impact your final landed cost.

Now that we've covered the key components, let's move on to how you can put all these numbers together using a step-by-step landed cost formula.

Also Read: What is Cargo Insurance: Costs, Importance, and Filing Requirements

How to Calculate Landed Cost?

Now that you know the different cost components, it's time to put them together using a simple formula. Accurate landing cost calculation ensures that you price your products correctly and avoid unexpected financial losses.

Landed Cost Formula

Landed Cost = Product Cost + Shipping Costs + Customs Duties and Taxes + Insurance + Additional Fees

Step-by-Step Landing Cost Calculation

Each component needs to be calculated carefully to ensure that no hidden costs are left out. Let's break it down step by step.

  1. Step 1: Determine the Product Cost

Start with the supplier's price per unit. This could be an EXW, FOB, or CIF price, depending on the agreement with your supplier.

Example:

  • Supplier price per unit (FOB) = ₹500
  • Total order quantity = 250 units
  • Total product cost = ₹500 × 250 = ₹1,25,000
  1. Step 2: Add Shipping and Freight Costs

This includes international freight, port handling, and last-mile delivery.

Example:

  • Ocean freight charge for the full shipment = ₹20,000
  • Local transport (port to warehouse) = ₹5,000
  • Total shipping cost = ₹25,000
  • Per unit shipping cost  = ₹25,000/250=₹100 per unit 
  1. Step 3: Calculate Customs Duties and Import Taxes

Duties and taxes depend on the product's HS Code and the import regulations in India.

Example:

  • Basic Customs Duty (10% of product cost) = ₹12,500
  • IGST (18% of CIF value) = ₹24,300
  • Social Welfare Surcharge (on duty) = ₹1,250
  • Total import duties and taxes = ₹38,050
  • Per unit customs cost = ₹38,050/250 = ₹152.20 per unit
  1. Step 4: Add Insurance Costs

Insurance protects against transit risks and is often calculated as a percentage of the product cost.

Example:

  • Insurance cost (1% of product cost) = ₹1,250
  • Per unit insurance cost: ₹1,250/250=₹5 per unit
  1. Step 5: Include Additional Fees

These can include storage charges, payment processing fees, and customs clearance costs.

Example:

  • Customs clearance agent fee = ₹5,000
  • Payment processing fee = ₹2,500
  • Storage and port charges = ₹2,000
  • Total additional fees = ₹9,500
  • Per unit additional cost: = ₹9,500/250 = ₹38 per unit
  1. Step 6: Final Landed Cost Calculation

Now, let's add everything together:

Cost Component

Cost per Unit (₹)

Product Cost

500

Shipping Cost

100

Customs Duties & Taxes

152.20

Insurance

5

Additional Fees

38

Total Landed Cost per Unit

₹795.20

So, the final landed cost per unit is ₹795.20. If you plan to sell this product, your selling price should be higher than ₹795.20 to make a profit.

Misjudging landed costs can cause pricing errors that hurt your profitability. If you only consider the supplier's price (₹500) and ignore the extra costs, you might price your product too low and lose money.

Now that we know how to do the landing cost calculation, let's explore how to minimize unnecessary expenses.

Also Read: How to Calculate and Declare Customs Value

How to Reduce Landed Cost?

Landed cost directly impacts your profit margins and pricing strategy. If it's too high, you may struggle to compete in the market. The good news is that there are several ways to reduce landed costs without compromising product quality. Here are some key strategies to lower your overall expenses:

  1. Negotiate Better Shipping Rates: Bulk shipping often reduces per-unit freight costs. Work with multiple logistics providers to find the best deal. Consolidating shipments also helps lower costs.
  2. Better Supplier Selection: A cheaper supplier doesn't always mean lower costs. Consider suppliers closer to ports or with better shipping terms to minimize freight and duty charges.
  3. Use Cost-Effective Shipping Methods: Sea freight is cheaper than air freight for large shipments. If time allows, opt for slower but more affordable shipping options.
  4. Reduce Customs Duties: Check for applicable Free Trade Agreements (FTAs) that offer reduced import duties. Properly classify products under the correct HS Code to avoid overpaying duties.
  5. Avoid Delays and Extra Fees: Port delays lead to storage fees and demurrage charges. Ensure accurate documentation and customs clearance to avoid unnecessary costs.

Reducing landed costs requires the right tools. From shipping to payments, Pazago provides solutions to help you control costs and improve efficiency.

Also Read: How To Reduce Container Shipping Costs?

How Pazago Helps Reduce Landed Costs

Managing landed costs requires efficiency across shipping, finance, communication, and compliance. Pazago simplifies trade operations, helping exporters control costs and improve supply chain performance.

By integrating these features, Pazago helps businesses lower landed costs, improve efficiency, and stay competitive in global trade.

Conclusion

Accurately calculating landed costs is essential for profitable international trade. By considering shipping, customs duties, insurance, and additional fees, businesses can set the right prices, avoid unexpected expenses, and improve financial planning.

Reducing landed costs requires optimizing freight rates, managing duties effectively, tracking shipments in real-time, and ensuring quality control. Tools like Pazago simplify these processes by providing cost-effective shipping, centralized communication, secure payments, and trade document management—all in one platform.

If you want to reduce unnecessary costs and streamline your export operations, Pazago can help you manage shipments, control expenses, and improve trade efficiency. Book a demo now! 

Optimize your business: use unlimited savings with Pazago fulfilled now!

Get Started ->

Table of content

Get in Touch Now!

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

Optimize your business: use unlimited savings with Pazago fulfilled now!

Get Started ->

Related Blogs

GUIDECustoms delays can significantly impact the efficiency and cost-effectiveness of international shipments. Each day a shipment is delayed in customs, it can lead to increased storage fees, demurrage charges, and potential loss of market opportunities. In some cases, lengthy customs delays can damage customer relationships due to missed deadlines or increased costs. The commercial invoice ensures accurate tariff codes, valuation, and classification, preventing customs delays and fines by ensuring correct duty and tax calculations. The packing list provides an itemized breakdown, verifying the shipment matches its declaration. These documents are crucial to ensure efficient customs clearance. This blog will walk you through creating a commercial invoice and packing list for international export, covering essential elements like product details, pricing, and shipping instructions. Importance of a Commercial Invoice and Packing List The commercial invoice and packing list are vital for efficient international trade. The commercial invoice serves as the primary document for customs declaration, outlining the value of goods for duty and tax assessments. The packing list, however, provides a detailed shipment breakdown, including the contents, quantities, and packaging type. Together, these documents guarantee compliance with regulations and ease communication between exporters, importers, and customs authorities, helping prevent costly delays, fines, and potential legal issues. What is a Commercial Invoice? A commercial invoice is a critical document used in international trade to facilitate customs declarations. It provides essential information about the transaction, ensuring easy clearance through customs and determining the duties and taxes due. Description and Use for Customs Declaration Customs authorities use the commercial invoice to assess the value of goods, calculate duties and taxes, and verify compliance with trade regulations. Identifies Value and Quantity of Shipped Products It specifies the total value of the goods being shipped and their quantities, enabling customs officials to determine the applicable fees. Essential Elements of a Commercial Invoice A commercial invoice must contain specific details to ensure proper processing by customs and facilitate the easy movement of goods. Key elements include: Seller and Buyer Information: The names, addresses, and contact details of both the seller (exporter) and the buyer (importer) are essential for identifying the parties involved in the transaction. Invoice Number and Date: A unique invoice number and the issue date are required for record-keeping and reference during customs clearance. Description of Goods: A detailed description of the products being shipped, including the type, model, and purpose, helps customs verify the nature of the goods. Quantity and Unit Price: The quantity of each item and the unit price, along with the total cost for each product, allow customs to determine the overall value of the shipment for duty assessment. Total Value of Goods: The total invoice value calculates the duties and taxes owed, making it one of the most crucial pieces of information on the commercial invoice. Country of Origin: This specifies the country where the goods were manufactured or assembled, which is important for calculating customs duty and complying with trade agreements. Payment Terms: The payment terms (e.g., net 30, prepayment, letter of credit) outline how the buyer will pay for the goods and under what conditions. Harmonized System (HS) Code: The HS code is a standardized system of names and numbers that customs use to classify goods. It helps determine applicable tariffs and facilitates international trade. Shipping Information: The method of shipment (air, sea, road), the name of the shipping company, and the destination are essential for the logistics of the goods' movement. Additional Costs: Any extra charges, such as shipping, insurance, and packaging costs, are typically included to provide a complete view of the total transaction. These essential elements ensure the commercial invoice meets legal and regulatory requirements, allowing customs authorities to clear the goods efficiently and accurately. Interesting Read: Understanding the Format and Importance of a Commercial Invoice What is a Packing List? A packing list is a detailed document that accompanies shipments, providing important information about the contents of each package. It plays a crucial role in facilitating customs clearance and ensuring proper handling throughout the shipping process. Purpose and Definition for Customs Clearance The packing list serves as an essential document for customs officials to verify the contents of a shipment. It helps ensure that the transported items match what is declared on the commercial invoice and comply with import/export regulations. Provides Shipment Item Details, Including Weight and Dimensions The packing list includes detailed information about each item in the shipment, such as the quantity, weight, dimensions, and packaging type. This helps customs authorities assess the shipment more accurately and makes it easier to verify the goods during inspection. Consistency with the Commercial Invoice The invoice packing list must align with the commercial invoice in terms of item descriptions, quantities, and total value. Consistency between the two documents helps avoid discrepancies that could lead to delays or issues with customs clearance. Contents of a Packing List A packing list provides detailed information about the contents of a shipment to ensure easy handling, shipping, and customs clearance. The key components of a packing list include: Shipper and Receiver Details: This section includes the names, addresses, and contact information of the shipper (exporter) and the receiver (importer), ensuring that the shipment can be traced to the right parties. Invoice Number: The packing list should align with the commercial invoice number to ensure it matches the shipment details and facilitates easier tracking. Description of Goods: Each item in the shipment is listed with a brief description, including the type, model, or category of the products. This helps customs officials and handling staff identify the goods. Quantity of Items: The packing list includes the amount of each product being shipped, ensuring accuracy when the shipment is inspected or when goods are counted at the destination. Weight and Dimensions: Detailed information about the weight and dimensions of each package or item is included to help with logistics planning, shipping cost calculation, and customs requirements. Packaging Details: Information on how the goods are packaged, such as boxes, pallets, crates, or containers, is provided to aid in handling and unloading. Shipment Type: The packing list specifies the method of shipment (e.g., air, sea, land) and may also include the mode of transport (e.g., container, truck, etc.). HS Code: Some packing lists include the Harmonized System (HS) code, which classifies products for customs purposes, ensuring proper tariff classification. Country of Origin: The packing list typically includes the country where the goods were produced, which is necessary for customs clearance and duty calculation. Additional Instructions or Notes: Any special instructions or conditions, such as fragile items, handling requirements, or delivery specifics, can be added to ensure proper care during shipping and delivery. By including these details, the invoice packing list ensures accurate documentation for shipping, customs clearance, and inventory management, helping to avoid delays and errors in the logistics process. You may also be interested in reading Creating a Packing List for International Exports. It's important to understand why merging the commercial invoice and packing list into one document can benefit your business. Let's look at the details. Why Have a Combined Document for Commercial Invoice and Packing List? Combining the commercial invoice and packing list is a practical approach that enhances the efficiency of international shipping and customs processes. By bringing these two essential documents together, businesses can simplify operations, reduce delays, and ensure efficient transactions from start to finish. Here's why combining them makes sense: Efficient Customs Clearance: Customs authorities require both documents to assess the value, contents, and origin of goods. Having both in one package simplifies the process and reduces the likelihood of delays or mistakes. Consistency and Accuracy: When both documents are combined, they offer a clear and consistent reference for the shipment. This ensures that the details on the commercial invoice (such as quantity, description, and value) align with the packing list, reducing discrepancies that could trigger customs inspections or shipping issues. Improved Efficiency in Handling: Combining the two documents (commercial invoice and invoice packing list) helps simplify logistics operations by providing all necessary shipment information at once. This makes it easier for warehouse staff, freight forwarders, and customs officers to process the shipment without cross-referencing multiple documents. Enhanced Customer Experience: By ensuring that shipments are accurately documented and processed, combining these documents reduces the chance of errors, returns, or delays, resulting in a better experience for both the importer and exporter. Saves Time and Reduces Paperwork: A single combined document reduces the need to manage multiple forms. This simplifies administrative tasks, reduces paperwork, and speeds up processing for logistics teams, freight forwarders, and customs officials. Improves Logistics Operations: With all relevant shipment details in one document, it becomes easier for logistics and warehouse teams to handle shipments quickly and accurately. This leads to more efficient inventory management and faster processing times. While a combined document for the commercial invoice and packing list offers significant benefits, there are also several challenges that must be addressed to ensure its effectiveness. Challenges in Creating and Managing Combined Documents Creating and managing combined commercial invoices and invoice packing lists can come with certain challenges, but understanding these obstacles can help you address them effectively and ensure better shipping operations. Complex Regulations: International shipping involves managing various regulations, including customs rules, taxes, and export/import laws. A combined document can simplify the process, but staying updated on regulations is critical to avoid costly mistakes. Language Barriers: Language barriers may pose challenges for shipments to different countries. Make sure all necessary fields are accurately translated to meet local requirements. The shipping software or third-party translation services can often handle this. Varying Requirements by Country: Different countries may have unique commercial invoice and packing list requirements. While combining these documents is often effective, it's essential to stay aware of any specific local guidelines that may affect how these documents should be formatted or the information they must include. Overcoming these challenges is essential to ensuring the success of a combined document, which is why implementing best practices becomes crucial for maintaining accuracy and compliance. Best Practices for Creating a Combined Document Best practices ensure the accuracy and consistency of both the commercial invoice and packing list, reducing the risk of errors and delays. By adhering to these practices, businesses can simplify the shipping process, ensure compliance with regulations, and improve customs clearance and delivery efficiency. Double-Check All Details: Ensure the commercial invoice and packing list contain accurate, up-to-date information, such as correct product descriptions, quantities, pricing, and weights. This is crucial for customs and to avoid any potential issues with your shipment. Use Clear and Concise Descriptions: Where applicable, provide clear descriptions of the goods, including model numbers or specific identifiers. This avoids ambiguity and helps customs authorities and recipients understand precisely what is being shipped. Organize the Document Clearly: Structure the document in an easy-to-read format, with well-labelled sections for item descriptions, quantities, prices, and shipping details. This will facilitate quicker processing by all parties involved, from logistics teams to customs officers. Automate Document Generation: Using logistics software, like Pazago, to automate the creation of these documents reduces human error, ensures compliance, and speeds up the entire process. While following best practices is essential for creating an accurate combined document, there are still challenges that can arise during the process. Understanding these challenges helps ensure efficient document preparation and management. How Pazago Simplifies International Export Pazago helps businesses simplify the creation of commercial invoices and packing lists for international export, ensuring accuracy, compliance, and efficiency. Centralized Document Management: Store, manage, and share export documents in one place, reducing paperwork and ensuring compliance with international regulations. Easy Collaboration: Facilitate efficient communication between export teams, customs agents, and freight forwarders to ensure timely and accurate document preparation. Fast, Secure Payments: Simplify payments and currency conversions for faster, secure transactions during the export process. Affordable Logistics: Pazago optimizes shipping routes to reduce costs and minimize delays, while still ensuring timely deliveries, so you can manage your shipping expenses effectively. Pazago simplifies the creation and management of export documentation, making international shipping more efficient. Conclusion Exporting internationally can be complex, and managing the required documentation efficiently is crucial to avoid delays and errors. A combined commercial invoice and packing list simplifies the shipping process, ensures compliance, and improves accuracy across the board. Having both documents in one place reduces the chances of discrepancies, speeds up customs clearance, and enhances overall efficiency in your supply chain. However, creating and managing these documents manually can be time-consuming. That’s where Pazago can help. With automated document generation, efficient integration, and real-time tracking, Pazago ensures your commercial invoices and packing lists are accurate and ready for shipment, making international trade more efficient. Ready to simplify your export documentation process? Schedule a demo today and see how Pazago can help simplify your commercial invoice and packing list management!

Creating a Commercial Invoice and Packing List for International Export

Learn how to create a commercial invoice and packing list for international export, ensuring compliance and accuracy for your shipments.

June 3, 2025