If you run a small to medium-sized business, or even if you’re part of a large corporation, you may feel that international shipping can be overly complex and unpredictable at times. However, armed with the right information and with access to expert support, you can find success with your imports and exports. One of the first things you’ll want to understand is how to arrive at your total landed cost.
A landed cost is the total charge associated with getting a shipment to its destination. It’s most commonly associated with international shipping, and usually refers to the cost of shipping, plus applicable duties, taxes and fees.
Landed costs do not end with duties and taxes, however. The total landed cost can include a range of additional factors, such as:
If that feels like a long list of potential costs, you’re not wrong. That’s why it is important to plan for your landed costs in advance. Here is a deeper dive into some of these individual costs that you’ll want to keep an eye on.
Transportation is a core element of a landed cost. In general, as the speed of transportation increases, so does the cost of shipping. For example, if you need your shipment sent overnight by air, you should plan for a higher cost than if you have time to ship by ground. UPS offers a wide range of international shipping options for you to choose from, covering every need and budget.
Pro tip: Work with a logistics expert like UPS to identify ways of consolidating your shipment to reduce shipping costs.
All customs documentation should be filled out as completely and accurately as possible to determine the proper duties. Roman Klimenko, global operations manager with STTAS, a UPS company that specializes in global trade compliance, advises shippers to pay special attention to the commercial invoice, the primary piece of customs documentation when shipping internationally.
Among various easy-to-make mistakes, “it is common for shippers not to give the full address and contact information of the consignee, or to forget to specify the currency of the shipment's value. Most importantly, giving a poor product description ultimately impacts classification and the duty associated with it,” Klimenko says. These types of inaccuracies can lead to delays at customs, which may drive up the landed cost.
However, paperwork needn't be burdensome. “Shippers can take advantage of technology solutions like UPS Paperless® Invoice to facilitate the flow of customs information paperlessly, easily, and accurately,” says Christopher Mehlfelder, vice president of marketing for i-parcel, a UPS company.
Pro tip: If a product falls under the de minimis amount, which allows the import of unrestricted products duty free below a certain value, duties will ordinarily not be assessed. The de minimis amount varies from country to country, so it's important to do your research.
Also, check whether a free trade agreement is in place with your destination country. If so, your product could be eligible for tariff relief, which will lower your landed cost.
Like duties, domestic taxes are a primary component to a landed cost. Some countries have more favorable tax policies than others, and it is important to review these in advance. Access resources such as the U.S. Commercial Service for advice on in-country sales taxes and for help identifying possible tax breaks.
Pro tip: Countries with low tax rates for a given commodity often result in a lower cost to the buyer, which pushes down the landed cost and is good for exporters. “A lower price point to the buyer can make a market more attractive to the seller,” Mehlfelder explains.
In most countries, duty is assessed on what’s called CIF (cost of goods, insurance, and freight). This means if the insurance cost increases, so does the duty amount, which drives up the landed cost.
Pro tip: Your cost of shipping may already have some insurance built into the cost, so figure out what this covers before purchasing additional protection. At the same time, pay attention to the differences between "Carrier Liability," which all shippers provide, and enhanced insurance products like those offered by UPS Capital.
“If a shipment goes missing, or is damaged, oftentimes the experience is far superior if you have planned ahead for these scenarios with a risk mitigation partner like UPS Capital,” Mehlfelder says.
If a product requires a permit or other official authorization, this may increase landed costs. Permit requirements and export restrictions vary by country.
Pro tip: Be sure to arrange any required export licenses before your shipment enters your country of destination. Applying for licenses while your shipment is already in transit adds cost and complexity to your shipping process, which may affect landed costs.
You may occasionally be required to pay storage fees, also known as demurrage, relating to a customs inspection. This is a charge levied on container shipments left in the terminal after the allotted free time.
Pro tip: Use a single carrier, such as UPS, to take care of all your international shipping needs, from pick up to customs clearance through final delivery, to reduce your risk of storage charges in the terminal.
It’s easy to overlook the cost to your company of goods that are returned by international customers.
“Returns management depends on many variables, not least of which is the product itself,” Klimenko says. For example, if you ship perishable food, returns may not make sense. However, higher value articles of clothing could more easily be returned, restocked and resold.
Shippers should also critically evaluate the way in which they will manage the reclaiming of paid duties and taxes when an international shipment is returned by the customer.
Pro tip: “If you are going to pursue a free returns strategy, factor the speed and cost of returns into your shipping decisions. There can be implications on the duty and taxes already paid for the original shipment,” advises Mehlfelder.
“Calculating a landed cost is highly dependent on your country of import,” explains Klimenko. When you import a product into the United States, for example, an ordinary duty is assessed on the cost of goods sold (CoGS), whereas in other countries the duty is often assessed on CoGS, plus insurance and freight (CIF).
There’s also the question about who pays for what. Generally, landed costs fall on the importing party, but costs can also be paid by the exporter or be split between the two. "Either way, it’s important to communicate your landed costs as clearly as possible to your customers, and use proper INCOTERMS on shipping documents,” he says. “For example, countries that allow DDP (Delivered Duty Paid) allow the duties and taxes to be billed back to an exporter. While INCOTERM DAP (Delivered at Place) shifts the responsibility for duties and taxes to an importer.”
UPS’s landed cost calculator allows shippers to obtain an estimated landed cost before the shipment leaves its origin. “UPS research shows buyers have a clear preference for having the total landed cost, in their native currency, in the shopping cart before the time of purchase,” adds Mehlfelder.
Working with a full-service carrier like UPS, small to medium-sized businesses can arrive at an accurate understanding of their landed cost ahead of time.
UPS offers shippers a range of support services to help manage the complexity of landed costs.
Take UPS company i-parcel, which focuses exclusively on supporting e-commerce shippers in improving the buying experience of their customers.
“Our technology calculates the total landed cost and can display it to shoppers in their shopping cart and in their native currency,” says Mehlfelder. By helping shoppers feel more comfortable with their buying decisions, it can lead to more sales for i-parcel clients.
“Perhaps the biggest difference between i-parcel and other competitors is that i-parcel guarantees landed costs, whereas many others only estimate them,” he explains.
Whatever your international shipping need, UPS can help. Visit our international trade page for more information.
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