How to calculate landed cost, step by step

What "landed cost" actually means

Landed cost is the total you pay to get a product from a supplier's door to yours, with every import charge included — not just the sticker price and not a single "duty rate" applied to the invoice. It is the number that tells you whether an import is actually profitable. Quote a customer or set a retail price off the supplier's invoice alone and you can lose your entire margin to duty, tax, and fees you didn't model.

A complete landed cost is built from these components:

Goods value — the price you pay the supplier for the product itself.
Freight — international transport to the destination (ocean, air, or courier).
Insurance — cargo insurance covering the goods in transit.
Customs duty — a percentage set by the product's tariff classification (its HS/HTS code) and country of origin.
Import VAT or GST — a consumption tax most countries charge at the border (the United States is a notable exception — it has no federal VAT or GST).
Government fees — processing and handling charges like the US Merchandise Processing Fee or Australia's Import Processing Charge.
Brokerage and last-mile — your customs broker's fee plus any domestic delivery.

The mistake almost everyone makes is treating landed cost as goods × (1 + some percentage). It isn't. The charges sit in a specific order, and several of them are calculated on a base that includes the charges before them. Get the order wrong and the number is wrong — usually understated, which is the expensive direction.

The order of operations

Landed cost is sequential. Each step feeds the next.

Step 1 — Establish the customs value

Everything keys off the customs value, and the customs value depends on two things: the destination country's valuation basis and your Incoterm.

Most of the world assesses duty on the CIF value — goods plus insurance plus freight to the border. A handful of major markets, including the United States and Australia, use a transaction-value / FOB basis instead: international freight and insurance to the destination are excluded from the duty base (foreign inland costs incurred before export are still included). So the same shipment produces a different duty base depending on where it lands. See CIF vs FOB for the full breakdown.

Your Incoterm (the 2020 set: EXW, FOB, CIF, DAP, DDP, and the rest) tells you what is already inside the price your supplier quoted, and therefore what you must add — or strip out — to reach the customs value. A CIF price already bundles freight and insurance; an EXW price contains neither. If your destination uses an FOB basis but your supplier quoted CIF, you have to back the freight and insurance out of the price to find the correct, lower duty base. If you bought EXW and the destination uses CIF, you add freight and insurance in.

Step 2 — Apply duty to the customs value

Multiply the customs value from Step 1 by the duty rate for your product's tariff code and origin. This is where classification matters: the rate is set per HS/HTS line, and it is the importer's job to self-classify correctly.

In the US, special tariffs — Section 301 (China-origin), Section 232 (steel and aluminum), and IEEPA measures — stack additively on top of the base HTS rate, applied to the same customs value. A 3% base rate with a 25% Section 301 tariff is a 28% duty, not 25%. These rates change frequently and depend on the HTS code and country of origin, so look them up on the official sources rather than treating any figure as fixed. See US Section 301, 232 and IEEPA tariffs.

Step 3 — Apply VAT/GST on the correct base

This is the step that catches people, because import VAT/GST is not charged on the goods alone — it compounds on the duty. The standard base is customs value + duty + freight and incidentals, so you are taxing the duty you just calculated.

Australia is the textbook case. GST (10%) is charged on the Value of the Taxable Importation (VoTI) = customs value + duty + international transport and insurance. Note what happens: Australia excluded freight and insurance from the duty base (FOB), then adds them back for GST. The two taxes use different bases on purpose. See GST on imported goods in Australia.

The US has no step 3 at the federal level — there is no import VAT or GST. State sales/use tax is a separate matter settled with the state, not collected at the border. (Duty vs VAT vs tariff explains why these are genuinely different taxes.)

Step 4 — Add government fees and brokerage

Fees are mostly flat or small-percentage charges that don't compound, but they're not optional and they're easy to forget.

United States: Merchandise Processing Fee (MPF) of 0.3464% of customs value on formal entries (over $2,500), with a floor of $33.58 and a cap of $651.50 (FY2026); informal entries ($2,500 or less) pay a small flat fee instead, not the percentage or the floor. Harbor Maintenance Fee (HMF) of 0.125% applies to ocean shipments only, with no cap.
Australia: Import Processing Charge of AUD 50 (value 1,000–10,000) or AUD 152 (over 10,000) for electronic lodgement, plus a biosecurity charge (AUD 46 air / AUD 68 sea). These apply only when the customs value is over AUD 1,000.

Then add your customs broker's fee — a private charge, not government-set — and any domestic delivery. See customs brokerage fees.

A worked example

Take a shipment into Australia: goods valued at AUD 5,000, shipped by sea, with AUD 600 freight and AUD 50 insurance. The product attracts a 5% duty rate, and GST is 10%.

Step	Calculation	Amount (AUD)
Customs value (FOB basis — freight & insurance excluded)	5,000	5,000.00
Duty (5% of customs value)	0.05 × 5,000	250.00
VoTI (customs value + duty + freight + insurance)	5,000 + 250 + 600 + 50	5,900.00
GST (10% of VoTI)	0.10 × 5,900	590.00
Import Processing Charge (value 1,000–10,000)	flat	50.00
Biosecurity charge (sea)	flat	68.00
Freight + insurance (paid regardless)	600 + 50	650.00
Total landed cost		6,608.00

The duty was 250 and the GST was 590 — but notice the GST is more than double the duty, even though both are smallish percentages. That's the compounding at work: GST is charged on a base that already includes the duty and the freight that duty excluded. The all-in effective rate on the goods value here is about 19% — far above the 5% duty rate you might have planned around if you'd only looked at the tariff.

Now run the same numbers as a US import — goods USD 5,000, freight USD 600, insurance USD 50 — but with a base duty rate of, say, 3% plus a 25% Section 301 tariff and a USD 150 broker fee. Duty becomes (3% + 25%) × 5,000 = USD 1,400. There's no GST. MPF clamps to its USD 33.58 floor (because 0.3464% × 5,000 = 17.32 falls below it), and ocean HMF is 5,000 × 0.125% = USD 6.25. Total landed: 5,000 + 600 + 50 + 1,400 + 33.58 + 6.25 + 150 = USD 7,239.83, an effective rate near 32%. Same product value, completely different structure — driven by stacked tariffs and the absence of VAT, not by one being "more expensive" in some flat sense.

Why the structure is the whole point

A flat percentage cannot capture any of this. The duty base changes with the destination and the Incoterm; the tax compounds on the duty; some bases add back what others took out; fees branch on entry value and shipping mode; and special tariffs stack. Two shipments with identical goods values can land 10+ points apart purely because of structure. That's why a real landed-cost figure has to be built, step by step, not estimated from a single rate.

One more caution on the numbers feeding your model: de minimis thresholds are volatile right now. The US$800 Section 321 de minimis is currently suspended for all countries (Executive Order 14324, effective 29 August 2025) — US duty applies from the first dollar, so don't assume small parcels clear free. Australia keeps its AUD 1,000 border threshold, but a separate rule has overseas sellers collect GST at checkout on consignments of AUD 1,000 or less. The UK flips VAT to seller-collected below GBP 135. Always verify the current threshold for your route. See de minimis thresholds explained.

Build the number, don't guess it

Work the four steps in order — customs value, duty, VAT/GST, fees — and you'll have a landed cost you can actually price against. To skip the arithmetic and the lookups, run your shipment through the Australia import duty calculator or the United States import duty calculator. Both apply the correct valuation basis, compounding, and fee logic for the destination automatically, so the structure is handled for you. For the full step-by-step method behind the calculators, this guide is the reference — and the related guides on Incoterms, HS codes, and duty vs VAT cover each component in depth.