Establishing landed
costs for the products that a company handles can be a tricky
business. All businesses that import or export need to understand what the
total cost of goods is for what they are buying or selling. In order to
accurately calculate the landed cost, all factors beyond the obvious primary
price must be considered. Calculating landed cost is critical
in understanding what a product actually costs and therefore what is can be
sold for.
Clearly it is
advantageous to reduce the cost of each or any component of landed cost. Each
one will allow the seller to lower the final selling price or increase the
margin associated with that sale.
When considering
the landed cost or ‘true cost’ of any item that is shipped
internationally there are components that need to be included. For instance, determining Harmonized System
Codes (HS Codes) or Harmonized Tariff Codes (HTS Codes) is
essential for over 98% of global trade. Once the HS Code or HTS Code is
obtained the mandated duties and tariffs can be established. Accuracy of these
harmonized codes is of significant importance as misclassification will result
in incorrect tariff codes, incorrect duties, and eventually customs delays and
fines. When customs delays and fines are levied, they themselves need to be
calculated into the landed cost model.
Global trade
management, supply chain management, and International logistics all have many
moving parts. In this economic climate trade agreements are being forged and
modified at a very high rate. HTS codes vary from place to place, cost of
fuel can drastically affect shipping costs, currency valuations ebb and flow
constantly and the list of variables goes on and on. Limiting the variables to
a manageable few will streamline operations and keep overall cost structures as
stable as possible.
Controlling costs,
ensuring timely deliveries and customs compliance are serious issues that every
international business is concerned with. Landed cost is a significant
component of all of these concerns. Establishing a landed cost model is
not just important, it is essential.
l of these
components are present in every shipment, but all that are must be considered
part of the landed cost.