“How much did that USD $10,000 commodity from overseas really cost?” One of the challenges for any organisation purchasing goods from overseas is to accurately identify the actual cost of those goods when “Landed” into their store in Australia. For obvious reasons, this is often referred to as the “Landed Cost” of the goods.
Unless goods are purchased on a Delivered Duty Paid (DDP) basis, the initial purchase price of the goods from an overseas supplier is never the actual cost of the goods.
In this article, we will give you a simple and practical example of the sorts of charges that may be incurred, and how they might be analysed and evaluated on a shipment by shipment basis.
The basics – the diverse charges of freight forwarding Landed Costs and their definitions
International purchases incur many tangible and intangible costs that need to be taken into consideration, with some examples as follows:
- Origin charges: Packing, cartage to port, fumigation, documentation, Customs clearance and export formalities
- International freight charges: Air Freight/Sea Freight, transit insurance, peak season surcharges, security surcharges, loading and unloading charges
- Destination charges: Port/Airline charges, Customs clearance, Quarantine, duty & barrier clearance fees, fumigation, delivery cartage, unpack fees
In addition to the above, there are the intangible and unplanned or unexpected charges in freight forwarding:
- Exchange rate fluctuations
- Storage and container detention
- Waiting time and delays
- Breakages and short shipment
- Warranty allowances
- Royalties and commissions
- Unpack, receiving
Let’s get to business – a real Landed Costs Analysis of a BCR freight customer
This is a landed costs calculation and report of a freight customer:
A Landed Cost Analysis using the values in the table above could look something like this:
This is a simple calculation where the duty is calculated per line, and all other landing charges are amortised over the lines by invoice line value, ultimately providing a “per unit Landed Cost”.
Complex calculations can be done to more accurately allocate expenses. For example, freight is often charged by weight or volume, and these charges can be allocated by the dimension or weight of the cargo. This is particularly important when high-weight/low-value cargo is shipped along with low-weight/high-value cargo.
Anything to consider about international transactions?
Landed Cost Analysis should also take into account the various exchange rates involved in a transaction, where differing rates are used for the Supplier, Overseas exporter, Shipping Line/Airline and Customs Value /Duty calculations.
Any additional figures and calculations concerning landed costs?
Additional calculations can be added to this analysis to allow for financing fees, annual insurance allowances, general overheads, warranty, breakages, royalties and any other identified expenses.
And how about GST in the landed cost calculation?
It’s important to note that while GST may be incurred and applicable to numerous of these expenses above, except in certain circumstances, GST does not form part of the Landed Cost.
While Landed Cost Analysis can be as simple or as complex as required, at BCR we can assist with the creation and consistent provision of this analysis on a shipment by shipment basis. In addition to providing the Landed Cost analysis data using agreed calculations, the analysis can be provided in printed, soft copy and/or any form of EDI/XML/CSV or another electronic delivery method.
For more than a century, BCR has continued to help small, medium and large businesses achieve an optimum logistics solution with warehousing and transportation, including air freight and sea freight services to and from the major ports including Brisbane, Sydney, Melbourne, Adelaide and Fremantle (Perth).