Costing
The number on the proforma invoice is the price of the goods. It is rarely the price of the order, and the distance between the two is where first-time importers lose their margin.
Contents
A landed cost has six blocks. Goods, packaging if it is charged separately, origin handling, international freight, duty and taxes, destination handling and delivery. A supplier quotation typically covers the first, sometimes the second, and stops.
| Block | Who quotes it | What drives it |
|---|---|---|
| Goods | Supplier | Material, quantity, specification, packaging |
| Origin handling | Forwarder or supplier, if FOB | Trucking, export declaration, terminal and document fees |
| International freight | Forwarder or carrier | Volume, weight, route, season, fuel |
| Duty and taxes | Your broker, at destination | HS classification, customs value, origin, trade agreements |
| Destination handling | Forwarder or agent at your end | Terminal, clearance, delivery, per-shipment fixed costs |
| Contingency | Nobody, until it happens | Inspection, storage, demurrage, a re-made carton |
The trade term decides where the supplier's responsibility stops, not where your cost stops. FOB means the goods are on the vessel and paid up to that point; it does not mean the shipment is free from there.
On a low-value, high-volume product, freight routinely exceeds the goods value. Cushions, plastic housewares and flat-pack furniture are the classic cases: the FOB price is small, the cubic metres are large, and the shipping cost per unit can approach the purchase price.
On dense, high-value goods the pattern reverses. Tools, small electronics and hardware ship cheaply per unit of value, but they attract more attention at destination because duty and compliance are calculated on a larger number.
Either way, the same question decides the order: what does one unit cost once it is standing in my warehouse? Two suppliers quoting 2.10 and 2.25 can end up at very different landed costs if one packs 40 units per carton and the other packs 24.
Origin and destination handling are charged largely per shipment, not per unit. A customs declaration, a terminal handling charge, a document fee and a delivery run cost roughly the same on one cubic metre as on fifteen.
That is why small sea shipments look cheap in the freight line and expensive on the invoice. Divide the fixed charges by the number of units and a 300-unit order can carry a per-unit overhead that a 3,000-unit order does not.
The practical consequence is a threshold. Below a certain volume, consolidating with other cargo or shipping by air can be cheaper per unit than a small LCL shipment, even though the freight rate per kilo is several times higher. The comparison is only visible when the fixed charges are in the same table as the rate.
Sea freight is bought by the cubic metre, subject to a minimum. Air freight is bought by the kilo, using whichever is greater between actual weight and volumetric weight, usually at a ratio of 1 to 6,000 for air and lower for express.
This is why packaging design is a freight decision. A carton that is 4 cm shorter on one side, multiplied by 400 cartons, can remove a cubic metre from the shipment. A product that nests instead of stacking can halve the volume without touching the unit price.
Ask suppliers for carton dimensions before the price negotiation, not after. A 3% discount on the goods is easily cancelled by a carton that is 15% oversized.
Duty is calculated on the customs value, using the tariff code assigned to the product in your country. Two products that look similar can sit in different chapters with different rates, and the difference is decided by material, function and presentation.
The code the Chinese factory uses for export is a starting point, not an answer. Export codes and import codes follow different national tariffs, and a supplier's code is chosen to get the goods out of China, not to get them into your market at the right rate.
Get the classification confirmed by your own broker before the order ships. Changing a code after the goods arrive means an amendment, a delay, and sometimes a penalty.
DDP hides this line. A supplier quoting DDP has estimated duty and folded it into a single number. Ask which HS code they used and what duty rate they assumed. If the answer is vague, the price is a guess with your name on the customs entry.
Ocean freight quoted as port-to-port excludes what happens after the vessel arrives: terminal handling, documentation, customs clearance, and delivery from the port to your door. These are charged by the agent at your end and they are not visible in the supplier's quotation or in the carrier's rate.
On a small LCL shipment they can exceed the ocean freight. The mechanism is the same as at origin: fixed per-shipment fees spread over a small volume.
Ask for a door-delivered estimate alongside the port-to-port rate before you approve an order. A forwarder who will not quote the destination side is quoting half a shipment.
Put both offers into the same six blocks and the same trade term. A CIF quote and an FOB quote cannot be compared until the freight and insurance are on the same side of the line, and a DDP quote cannot be compared at all until you know the duty assumption inside it.
Then compare per unit landed, at the same quantity, with the same packaging and the same carton count. Most price differences disappear at that point, and the ones that survive are worth negotiating.
Keep a fourth column for risk: lead time, payment terms, and whether the supplier has shipped to your market before. The cheapest landed cost with a 90-day lead time is not the cheapest order.
Two practical checks close the comparison. Ask how long the quoted price holds, because a supplier quoting in a currency that has moved will re-price at the deposit stage, and the re-price is rarely in your favour. Then ask what quantity the price is valid at, since a number that assumes the next band up is a number you cannot order.
Finally, convert everything to one currency on one date and write that date on the sheet. Two quotations converted on different days are not comparable, and the difference is large enough to change the ranking on small orders.
Q Why is the final cost so much higher than the FOB price?
FOB covers the goods and getting them onto the vessel. Freight, insurance, duty, destination handling and delivery are all added after that point, and on small shipments the fixed per-shipment charges are a large share of the total.
Q What is the difference between FOB and CIF in practice?
Under FOB you arrange and pay the main carriage; under CIF the supplier arranges freight and minimum insurance to your port. CIF is simpler and usually more expensive, because you inherit the supplier's freight rate and cannot see what it contains.
Q Does a DDP price include duty?
It should, and it should also name the HS code and duty rate assumed. DDP prices that do not disclose the classification are estimates, and any difference is settled at the customs entry in your name.
Q Which is cheaper for a small first order, air or sea?
It depends on volume and value density. Air costs far more per kilo but carries no minimum cubic metre and clears faster. Small LCL shipments often lose their advantage to fixed origin and destination charges.
Q How much does packaging affect freight?
Directly, through volume. Carton dimensions multiplied across the order decide the cubic metres, and a carton a few centimetres oversized can add a full cubic metre on a container load.
Q Should I use the HS code the supplier gives me?
Use it as a reference, not a decision. Export classification in China and import classification in your country follow different tariffs. Have your own broker confirm the code before the shipment leaves.
Related pages
Send us both quotations and the carton data. We will put them on the same basis, add the lines that are missing, and tell you which one is actually cheaper.
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