A first-time importer in Manchester priced her festive range off the FOB quote and planned a comfortable margin on it. By the time the container had cleared, been examined, been re-labelled for the local market and been trucked to her warehouse, a third of that planned margin had quietly walked away. Nothing on the invoice was a lie. The invoice was simply not the whole story, and nobody had handed her the rest of the arithmetic.
We see the same shock in first-time buyers every autumn, so here is the full sheet, written the way a Surat export desk would build it.
The Formula Before Any Number
Landed cost is the sum of: FOB value, ocean freight and origin charges, marine insurance, customs duty, VAT or GST at destination, terminal handling and last-mile delivery, and a finance cost line for the capital you lock up along the way. Build the sheet once, with one column per shipment, and reuse it forever. The formula never changes; only the percentages do.
Two of those lines behave differently from the rest and deserve a note before you touch a calculator. Customs duty is assessed on a customs value, and different markets compute that basis differently, some on FOB, some on FOB plus freight plus insurance, so confirm which basis yours uses before modelling anything. VAT or GST is often recoverable for a registered business, which makes it a cash-flow line rather than a permanent cost, but it still bites if you are funding it for months.
Once the total exists, allocate it per piece, not per carton. Volumetric cargo like gowns carries more freight per piece than dense packs like sarees, and per-piece landed cost differences across your own range will tell you which products truly earn their shelf space.
HS Chapters 61 and 62, and Why Duty Is Never One Number
Garments classify into two chapters of the harmonised system, and the split matters more than most first-time buyers expect. Chapter 61 covers knitted or crocheted garments, which is where many kurtis, tops and knitwear lines sit. Chapter 62 covers garments of woven fabric: sarees, woven salwar suits, most lehengas and gowns. A single kurti programme can straddle both chapters if some pieces are knit and some woven.
Duty is not one percentage. It depends on the exact tariff line, the fibre composition, and your own country's schedule; cotton and man-made fibre lines are often rated differently within the same market, and art silk, which is viscose, counts as man-made fibre. Garment duty lines commonly run from single digits into the high teens in percent, depending on market and classification, so look up your rate for your code rather than trusting an average quoted at a trade fair. Ask your supplier which HS code they export under, and whether a certificate of origin can bring the rate down under a trade agreement your country participates in.
One warning worth its own paragraph: misclassification is not free money. Customs can reclassify a line, claw back duty with penalties and interest, and hold the container while they decide. If a tariff call looks too good, pay a licensed broker for a ruling before you build a season on it.
The Lines That Never Appear on the Quote
- Demurrage and detention, if clearance slips past the free days your shipping line allows
- Customs examination fees, when your container is pulled for X-ray or physical inspection
- Re-labelling, if your market's country-of-origin or care-labelling rules catch non-compliant tickets
- Delivery order, terminal handling and customs broker charges
- Bank charges and conversion spreads, if you are paying through a letter of credit or across currencies
Each line is small on its own. Together they routinely add a double-digit percentage on top of what a naive FOB-to-retail calculation assumed, and the examination line is the sneakiest because it is a probability rather than a certainty. Budget an allowance for it instead of hoping, because hoping is not a procurement strategy.
A Worked Example on an Index, Not a Currency
Set the FOB value of a consignment at one hundred units, an index rather than a price, because the shape of the maths is identical whatever currency you buy in. Suppose ocean freight and origin charges come to twelve units and marine insurance to half a unit. If your market assesses duty on FOB plus freight plus insurance, the customs value is one hundred and twelve and a half, and an assumed duty of ten percent, purely for illustration, adds just over eleven units.
From there, destination handling, broker fees, an examination allowance and inland delivery add another five units. A finance cost line, covering capital locked from advance payment through production, four to six weeks at sea, clearance and sell-through, adds three more. Landed cost lands near one hundred and thirty-two units.
Now the margin arithmetic that actually matters. A buyer who planned a seventy percent gross margin on an FOB-based price discovers the same selling price delivers roughly sixty percent against landed cost. The goods did not get worse and the market did not get worse; the sheet was incomplete. Redo the pricing against the full stack, or lift the planned price, before confirming the order rather than after the goods arrive.
Finance Cost, the Line Everyone Forgets
Money in an import order is locked up for a long time. The advance goes out at order confirmation, the balance before the original documents are released, and the goods then spend weeks at sea and further weeks or months selling through. On a festive range, four to five months of capital occupation is completely normal.
An internal interest line in your landed cost sheet is the honest way to price that occupation. Even if you self-fund, the capital has an alternative use, and treating it as free is how buyers end up wondering why two apparently identical seasons produced different bank balances. The habit also sharpens your ordering: capital rotation is the quiet reason seasoned buyers consolidate suppliers instead of scattering orders across five new ones every season.
Our own admission: the early proformas we sent out listed FOB and very little else, and we watched good buyers discover their destination costs the hard way. Now we put the cost structure on the page even when it makes our number look larger beside a bare quote from elsewhere, because a buyer who models properly comes back for reorders.
Frequently Asked Questions
What is the difference between landed cost and CIF?
CIF ends at your destination port and covers goods, freight and insurance only. Landed cost continues through duty, VAT, terminal charges, examination risk, last-mile delivery and finance cost, all the way to sellable goods in your warehouse.
Is VAT part of landed cost if I can reclaim it?
It is a cash-flow line rather than a permanent cost for most registered businesses, but keep it in the sheet anyway. Funding it for months has a real cost, which belongs in your finance line.
Which HS code chapter do sarees and kurtis fall under?
Woven sarees and woven suits sit in chapter 62; knitted kurtis and tops sit in chapter 61. A mixed programme can straddle both, and fibre composition can change the duty rate within a chapter, so confirm exact codes with your supplier and your customs broker.
How much does a customs examination actually add?
The examination fee itself is usually modest; the real risk is the demurrage that accrues while your container waits its turn. Budget a small allowance for the probability, and negotiate free time with the shipping line rather than hoping you are never pulled.
Why do two importers pay different duty on the same garments?
Different valuation bases, different classification calls, different trade agreements and certificates of origin. Duty is a structure, not a constant, which is exactly why it belongs in your own sheet rather than in folklore.
Should I include sample and travel costs in landed cost?
Yes, allocated across your first year's volumes. Trials, samples and a scouting trip are real costs of getting to a sellable range, and treating them as overhead rather than landed cost hides the true price of your first season.
If you want a supplier who quotes with structure rather than a single bare number, send us your market and product mix and we will build a proforma you can drop straight into a landed cost sheet. Serious buyers can request samples first, and we would rather you cost the programme properly than hurry the arithmetic.
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