Landed cost: how to compare import quotes properly

What goes into landed cost

Typical components for a sea import into the EU:

Import VAT is treated separately below.

Customs value and duty

EU customs duty is normally charged on the customs value, which starts from the transaction value. Under the Union Customs Code, transport and insurance costs up to the place where the goods enter the EU customs territory are added if they are not already in the price. In practice, on an FCA or FOB quote you must add freight and insurance before calculating duty.

The duty rate depends on the tariff code and the country of origin, both looked up in TARIC. Some origins, such as GSP beneficiary countries, may qualify for reduced or zero duty, but only if the rules of origin are met and the correct proof of origin is presented. See our guide to HS and CN codes.

Import VAT at a high level

In the EU, the taxable amount for import VAT is the customs value plus duty, plus excise where relevant, plus incidental costs such as transport and insurance to the first place of destination in the importing Member State. This comes from the EU VAT Directive and is implemented in national law.

For a VAT-registered business, import VAT is usually recoverable, so it is a cash-flow item rather than a cost. How it is paid depends on the country. Poland, for example, offers two main routes:

• paying the VAT to customs on the basis of the customs declaration and deducting it later in the VAT return;
• accounting for it in the VAT return (Article 33a of the Polish VAT Act), declaring output and input VAT in the same period with no cash payment at the border. This requires meeting conditions, including active VAT registration and certificates or statements showing no tax or social security arrears, and as a rule acting through a customs representative, with exceptions such as AEO holders.

Other Member States have their own rules for postponed accounting. Confirm the current conditions with a tax adviser or customs broker before your first import.

Worked example (hypothetical figures only)

The numbers below are invented to show the method. They do not reflect real freight rates, prices or duty rates.

A buyer in Poland compares two quotes for 20 tonnes of goods from Asia, delivered to a warehouse near Gdańsk. Example assumptions: 5% duty on customs value, 8% annual cost of capital, goods arrive at the warehouse 75 days after the order.

• Quote A: FCA terminal at origin port, EUR 1,000 per tonne, 30% prepayment with the order, 70% on arrival.
• Quote B: CIP Gdańsk, EUR 1,110 per tonne, 100% prepayment with the order.

Financing cost is the prepayment multiplied by 8% and 75/365 days: EUR 6,000 for Quote A and EUR 22,200 for Quote B.

Quote B is 11% more expensive on unit price, yet the landed cost is practically the same. The decision then turns on other factors: CIP carries a minimum of Institute Cargo Clauses (A) cover, Quote A lets the buyer choose the carrier, and Quote B needs full prepayment, which puts more credit risk on the buyer.

Currency and exchange rates

If quotes are in different currencies, convert them at the same rate on the same day and decide how you will manage exchange risk. Duty and VAT are calculated in the local currency at the rate set under customs rules, not the rate at which you pay the supplier. On long payment terms, a currency move can wipe out the entire price saving.

Costs that are easy to miss

• Container demurrage and detention if clearance is delayed.
• Phytosanitary, veterinary or quality inspections at the border.
• Laboratory tests and certificates your own customers require.
• Bank charges for international transfers or letters of credit.
• Quantity tolerance: if the contract allows +/- 5%, calculate cost per tonne actually delivered.
• Natural losses in bulk and liquid cargo.

Comparing quotes in practice

1. Ask all suppliers for the same Incoterms rule and place, or for a price breakdown by component.
2. Confirm the tariff code and duty rate before comparing; different origins mean different rates.
3. Get current freight rates from your forwarder for the same shipping window.
4. Add local costs and the financing cost implied by each quote's payment terms.
5. Compare cost per unit delivered to your warehouse, not the quoted price.

On Hiram, quotes submitted against a request can be compared by total landed cost rather than unit price alone. It still pays to confirm freight and duty rates for each specific shipment.

Summary

Landed cost forces the questions you need to ask anyway: who pays freight, what is the tariff code, when do you pay and in which currency. Compare quotes at one delivery point in one currency, and treat recoverable import VAT as a cash-flow matter rather than a cost.

To compare supplier quotes this way, browse the Hiram market.

Sources

• Regulation (EU) No 952/2013 laying down the Union Customs Code (Articles 70-71, customs value): https://eur-lex.europa.eu/eli/reg/2013/952/oj (opens in a new tab)
• Council Directive 2006/112/EC on the common system of VAT (Articles 85-86): https://eur-lex.europa.eu/eli/dir/2006/112/oj (opens in a new tab)
• Biznes.gov.pl, Settling VAT on imports of goods (Polish): https://www.biznes.gov.pl/pl/portal/00262 (opens in a new tab)
• European Commission, TARIC database: https://ec.europa.eu/taxation_customs/dds2/taric/ (opens in a new tab)
• ICC Academy, Incoterms® 2020: CIP or CIF?: https://academy.iccwbo.org/incoterms/article/incoterms-2020-cip-or-cif/ (opens in a new tab)