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How to estimate landed cost — FOB, CIF, duty and delivered

Last reviewed 2026-10 · 5 sections

'Landed cost' is the total cost of getting goods to the buyer's door — or to your warehouse if you are the importer. It is built up in layers, and each layer depends on which Incoterms rule the sale uses. This guide walks the build-up and, just as importantly, says where estimates break down.

Incoterms decide which costs are yours

Before you can add anything up, you need to know the delivery term. It sets who pays for carriage, insurance, export clearance and import clearance:

  • EXW — you hand over at your premises; the buyer pays everything after that.
  • FOB — you pay costs up to and including loading on the vessel at the named port; the buyer pays ocean freight and everything after.
  • CFR / CIF — you pay the ocean freight (CIF adds insurance to a named destination).
  • DAP / DDP — you deliver to the destination (DDP includes import duty; DAP does not).

An invoice that does not state the Incoterm is ambiguous about what is being charged — which becomes a dispute at clearance.

The build-up, layer by layer

  • 1. Ex-works cost — what the goods cost to make and pack (plus inland pre-carriage, export handling and customs clearance if your term includes them).
  • 2. + International freight — air or ocean, plus terminals, security and documentation fees. This is the most volatile line in the whole calculation.
  • 3. + Insurance — typically a small percentage of the CIF-adjacent value.
  • 4. = CIF value at the destination port.
  • 5. + Customs duty — usually assessed on the CIF value (the customs value), at the rate for your national tariff line.
  • 6. + Taxes on import — VAT / GST is normally charged on (CIF + duty), so it compounds. Some jurisdictions add levies, excise or environmental taxes.
  • 7. + Destination charges — port/terminal handling, agent and clearance fees, inland transport, demurrage risk.

An illustrative build-up

The arithmetic below is deliberately round and illustrative — it is not a rate for any product, route or country, and the percentages are not claims about real tariffs:

LayerIllustrative value
Goods (ex-works)10,000
+ freight1,500
+ insurance100
= CIF value11,600
+ duty (illustrative 10% of CIF)1,160
+ VAT (illustrative 15% of CIF+duty)1,914
+ destination charges400
= landed cost15,074

Note how VAT compounds on duty: taxes on import are usually calculated on the duty-paid value, not on the goods alone. Recoverable VAT (as most businesses can reclaim it) is a cash-flow cost, not a final one — but you still pay it at the border.

Where the arithmetic goes wrong

  • Freight is not a constant. Rates move with season, fuel and capacity. Quote the landed cost with a dated freight assumption and refresh it.
  • Currency moves both ways. The goods, the freight and the duty may be in different currencies at different times.
  • Valuation, not just the rate. Customs may adjust the declared value (royalties, assists, related-party pricing) — the duty base can change even if the rate does not.
  • Extra instruments. Anti-dumping and countervailing duties, safeguard measures, quotas and product standards can apply on top of the tariff and are frequently missed by generic calculators.
  • Incoterms mismatch. Adding freight to a price you are quoting FOB inflates your quote; adding it to a price you are buying DDP double-counts it.

Confirm before you commit

Use the calculator to size the number and structure the questions. Confirm the duty rate, the valuation basis and any additional instruments with the destination customs authority or your customs broker before you price a deal — a landed-cost estimate is a planning tool, not a customs determination.

Use the tools

Sources & further reading

World Customs Organization — HS & valuation International Chamber of Commerce — Incoterms Indian Customs Tariff (CBIC)

These guides summarise public material from the bodies named above. They are general information, not advice on a specific shipment, and they are not a substitute for a ruling from your customs authority or a qualified customs broker / consultant.

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