The factory price you receive from a Chinese supplier — whether quoted as EXW or FOB — is typically only 50–70% of what the product actually costs you by the time it arrives at your door. Freight, import duty, customs brokerage, insurance, and port charges stack on top. Most first-time importers underestimate their true landed cost by 30–50%, leading to margin erosion, incorrect pricing, and unpleasant surprises. This guide walks through every component with real numbers.
Why the Factory Price Is Just the Beginning
When a Chinese supplier quotes you $8 per unit, they are almost always quoting either EXW (you collect from the factory) or FOB (they deliver to the port of export and clear Chinese customs). Neither of those prices includes the cost of getting the goods to your warehouse.
The complete cost of an imported product — what you paid in total divided by units received — is called the landed cost. This is the only number that matters for margin calculation, pricing, and profitability analysis. Every import decision should be made on landed cost, not factory price.
The 7 Cost Components of Every Import
Every international shipment involves some combination of these seven cost components. Understanding each one prevents budgeting surprises:
| Cost Component | Description | Typical Range (% of FOB) |
|---|---|---|
| 1. Product cost (FOB) | The factory price including export packing, to the origin port | Base (100%) |
| 2. International freight | Ocean or air freight from origin port to destination port | 5–20% |
| 3. Marine insurance | Cargo insurance — typically 0.3–0.5% of CIF value | 0.5–1.5% |
| 4. Import duty | Customs tariff applied to CIF value at destination | 0–25%+ |
| 5. Customs brokerage | Fee to a licensed customs broker for declaration filing | 1–5% |
| 6. Port & handling charges | Terminal handling, THC, ISF filing (USA), documentation fees | 1–3% |
| 7. Inland delivery | Transport from destination port to your warehouse | 2–8% |
Ranges vary significantly by trade lane, product category, and destination country. The figures above are indicative for a China-to-USA or China-to-Europe ocean shipment.
The CIF Duty Trap — The Most Expensive Mistake Importers Make
Most new importers assume that import duty is calculated on the factory price (FOB value). This is incorrect. In virtually every country, customs duty is calculated on the CIF value — that is, the Cost of goods plus Insurance plus Freight to the destination port.
This has a compounding effect that catches importers off guard:
Worked Example
- FOB value: $10,000
- Ocean freight: $800
- Marine insurance: $120
- CIF value: $10,000 + $800 + $120 = $10,920
- Import duty rate (assume 12%): 12% × $10,920 = $1,310
An importer who budgeted duty on the FOB value would have calculated $1,200. The actual duty is $1,310 — a $110 difference on a single shipment. At 10 shipments per year, that's a $1,100 annual underestimate — not including the interest and penalty risk if customs detects under-declaration.
The CIF trap is especially painful for high-duty categories: electronics (5–15%), textiles (12–25%), and footwear (up to 48% in some markets) amplify the error significantly.
Worked Example: Importing 1,000 Units from Shenzhen to Los Angeles
Here is a full line-item landed cost breakdown for a realistic shipment of 1,000 consumer goods units from Shenzhen, China to a Los Angeles warehouse:
| Cost Item | Basis | Amount (USD) |
|---|---|---|
| Product cost (FOB Shenzhen) | $8.00 per unit × 1,000 | $8,000 |
| Ocean freight (LCL, ~5 CBM) | $130/CBM × 5 CBM | $650 |
| Marine cargo insurance | 0.4% of CIF value | $90 |
| CIF value (subtotal) | $8,000 + $650 + $90 | $8,740 |
| Import duty (12% on CIF) | 12% × $8,740 | $1,049 |
| ISF filing fee | Fixed | $65 |
| Customs brokerage | Fixed | $280 |
| Port & terminal handling (LA) | Fixed | $180 |
| Inland trucking (LA port → warehouse) | Fixed | $350 |
| Total Landed Cost | $10,664 | |
| Landed cost per unit | $10,664 ÷ 1,000 | $10.66 |
The FOB price was $8.00 per unit. The actual landed cost is $10.66 per unit — a 33% difference. If this product retails at $19.99, the importer's gross margin assumption at FOB cost was 60%. At landed cost, it's 47%. That 13-point margin gap can determine whether the business is profitable.
How to Calculate Landed Cost Per Unit
The formula is straightforward:
Landed Cost Per Unit = Total Landed Cost ÷ Total Units Received
Where Total Landed Cost = FOB value + freight + insurance + duty + brokerage + port charges + inland delivery
The challenge is accuracy on the variable components — particularly import duty (which requires knowing the correct HS code and applicable rate), ocean freight (which fluctuates with market rates), and inland delivery (which varies by distance and truck type).
Best practice is to get three freight quotes before each shipment, confirm the HS code and duty rate with your customs broker before ordering, and build a 5% contingency buffer into your landed cost budget for unexpected surcharges.
Frequently Asked Questions
What is the difference between FOB and landed cost?
FOB (Free on Board) is the price of goods delivered to the origin port, with export customs cleared. Landed cost is the total cost of goods delivered to your warehouse including all freight, insurance, duty, brokerage, and handling charges. Landed cost is always higher than FOB — typically 20–50% higher depending on trade lane and duty rates.
How do I find the import duty rate for my product?
Import duty rates are determined by the Harmonised System (HS) code of your product. In the USA, use the USITC HTS database (hts.usitc.gov). In the UK, use the Trade Tariff service (trade-tariff.service.gov.uk). In the EU, use the TARIC database (ec.europa.eu/taxation_customs/dds2/taric). Your customs broker can also advise on the correct HS code classification.
Is marine cargo insurance mandatory?
It is not legally mandatory, but it is strongly advisable. If you trade on CIF terms, the seller provides insurance to the destination port. If you trade on FOB terms, you are responsible for insuring the cargo from the moment it's on board the vessel. Ocean freight claims are notoriously slow — insurance is cheap protection at 0.3–0.5% of cargo value.
Can I reduce my import duty legally?
Yes. Common legal methods include: applying the correct HS code (over-duty due to mis-classification is common), using preferential trade agreement rates (e.g., GSP, RCEP, FTAs), first sale valuation (using the factory price rather than the middleman price as the duty basis), and bonded warehousing to defer duty payment until goods are sold.
Does the landed cost formula change for air freight vs ocean?
The cost components are the same, but the amounts change significantly. Air freight typically costs 4–6× more than ocean freight per kg. However, insurance rates are lower for air (lower transit risk), and you may save on warehousing costs due to faster delivery. For high-value, time-sensitive, or perishable goods, air freight landed cost can still be competitive.
Know your true cost before you order. Our free tool calculates the full landed cost breakdown including duty, freight, and all charges. Calculate your total landed cost with our free tool →