All over MALBE Connect you will come across the term “landed costs.” Should you conduct any form of business with our international logistics divisions you can be pretty sure your agent will use the term as well. So what does it mean and why do we harp on it so?
In short, landed cost is exactly what it says: the cost of your imported products, landed at your door. It can also be referred as cost of sales, cost of the goods and even purchase price. This is the point at which the objections start and they are normally along the lines of; “how can freight and taxes be part of my purchase price, I purchased the products for far less than that, it’s the freight and taxes which drive the costs up.” Well, there you have just said it “drive the costs up.”
When discussing local business; logistics, telecoms, marketing, day to day etc, are not considered cost of sales. Ergo your cost of sale is the cost of the product when entered into inventory. Applying the same logic, what then is your cost of sale on any given import? It is the cost of the product when it is entered into inventory, meaning the cost of the product at origin, import freight, import taxes and final delivery at destination (and everything in between). This is your landed cost.
Inevitably the next thing we hear is; “yes but we can buy it for so much cheaper in wherever. “ This may be so but it has exactly zero bearing on what the products cost locally, ie, landed. You may be able to buy it wherever but what is the point if you cannot access it? For it to be of any use or value you still have to transport it, process it through customs and have it delivered to your point of sale. As long as we have not yet invented teleportation this means that your cost is not what you paid for it wherever but rather what it cost now, when landed at your door – landed cost. The crux here is that you, the importer, must change the way you view your cost of sales on your imported goods. Now let’s break it down a little further.
You should read import costs broken down in conjunction with this article as it will help shed light on most of the points below.
- Value of the goods – this is what you paid for the goods, as per the forex transaction.
- Banking fees – bank fees for forex transfers are vast and can play a large roll (depending on the size of your import) so check these with your bank.
- Custom value – this is what customs will value you goods at and unless you have misrepresented, should be very close to your value of the goods. Factors which may affect this is your shipping terms as well as rate of exchange. While this is not an add-on cost per say it may affect your tax calculations, hence we have included it her.
- Import duties – these are calculated based on your custom value and where applicable most often are a percentage of the value of the product, on board.
- Import VAT – this is calculated based on the custom value plus the duties value. Important to note, VAT is claimable provided you are VAT registered, in which case it does not form part of your landed costs.
- Freight and logistics – this is essentially what it says, all transport and associated costs.
- Insurance – this is a buyers decision and common sense is best employed here.
While the above is a somewhat simplistic breakdown and most line items can be broken down a lot further, each with its own set of potentially additional costs, it really is only a guide designed to help shift your mindset pertaining to the cost of imported goods. Also, it may help shine some light on why local products can seem so over priced when compared (this though is a topic for another day).
The take away here is to remember that your landed cost is your true cost of sale and not to try and separate this into line items. Simply take your total cost and divide them buy your product quantity, ending up with your final cost. You may also want to explore the MALBE import service which effectively manages all of the above on your behalf, saving you money and freeing up valuable time for you to concentrate on what you do best.
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