What Are Landed Costs? Freight, Customs, and True Unit Cost

Landed cost is what a product actually costs by the time it is sitting in your warehouse ready to sell — the supplier's price plus every charge incurred getting it there. Freight, customs duty, insurance, handling, port fees.

The gap between invoice price and landed cost is routinely 5–20% on imported goods, and a business that prices off the invoice price is quietly selling some products at a loss while believing its gross margin is fine.

What belongs in the cost of stock

Inventory is measured at the cost of bringing it to its present location and condition. That gives a clear test — did this cost get the goods here and ready to sell?

Capitalize into inventory:

• Purchase price, net of trade discounts and rebates
• Inbound freight and shipping
• Customs duties and non-recoverable import taxes
• Transit insurance
• Handling, port and terminal charges
• Import clearance and broker fees

Expense as incurred:

• Outbound freight to customers — a selling cost, not part of stock
• Recoverable import VAT — it is reclaimed, so it is never a cost
• Storage after the goods are ready for sale (unless a production process requires it)
• Administrative overheads and purchasing-department salaries
• Abnormal waste, and demurrage from your own delays

The recoverable-VAT distinction catches people out on imports: import VAT is usually reclaimable and therefore excluded, while customs duty is not reclaimable and therefore belongs in the cost.

Why it changes the answer

Import 500 units at 20 € each, with 1,600 € of freight, 900 € of duty and 200 € of insurance:

	Amount
Goods (500 × 20.00)	10,000
Freight	1,600
Customs duty	900
Insurance	200
Total landed cost	12,700
True unit cost	25.40

The invoice says 20.00 €. The real cost is 25.40 € — 27% higher. Price this at 26 € believing you are making a 30% margin and you are actually making 2.4%.

The effect compounds through the accounts. Understating stock cost understates COGS and overstates gross profit while the goods sit unsold — then the unrecorded freight lands as an operating expense in a later period, so profit looks strong then weak for reasons nobody can trace to a product.

Allocating the cost

One freight invoice covers many products, so the charge must be spread. Two defensible bases:

By value — each item absorbs a share proportional to its value. Sensible for insurance and ad-valorem duty, and the usual default:

Item	Qty	Unit cost	Value	Share of 2,700	New unit cost
A	300	20.00	6,000	1,620	25.40
B	200	20.00	4,000	1,080	25.40

By quantity — each unit absorbs an equal share. Right for freight where items are similar in size and weight, and where a high-value item shouldn't shoulder more of a cost driven by volume.

Neither is universally correct. Freight on a container of identical boxes is a quantity problem; insurance on a mixed load of cheap and expensive goods is a value problem. Weight or volume would be the theoretically best basis for freight, and is usually not worth the data collection.

The timing problem

Landed costs almost always arrive after the goods. The shipment is received on the 3rd, the freight invoice on the 20th, the customs broker's bill in the following month. By then some units may already be sold.

Two honest options: hold the receipt open until all costs are known (accurate, and it delays your stock records), or receive at invoice cost and add the charges as they arrive (records stay current, and cost is restated). Most systems do the second, which raises the question of what happens to units already sold — see below.

How Nordlet does it

Landed costs are implemented, through POST /v1/inventory/landed-costs/create. You post an amount with a date, choose a method — by_value or by_quantity — and target it either at a goods receipt or at an explicit list of stock movements.

The allocation works on the FIFO layers directly. Each target layer's weight is its remaining quantity (for by_quantity) or remaining quantity × unit cost (for by_value); the amount is split in proportion, and each layer's unit cost is increased by its share divided by its remaining quantity. From that point every consumption of those layers carries the higher cost into COGS.

The consequence is deliberate and worth understanding: only stock still on hand absorbs the cost. Units already sold are not retroactively restated, because doing so would rewrite the cost of sales in a period that may already be closed and reported. It keeps locked periods genuinely locked, and it means allocating freight promptly matters — the longer you wait, the more of the shipment has already been costed without it. If nothing remains on hand, the allocation is rejected rather than silently discarded.

Allocations are visible through /v1/inventory/landed-costs/list and /landed-costs/get, and their effect shows up directly in stock value via /v1/reports/stock-balance.

Two limits: allocation is by value or quantity only — no weight or volume basis — and the landed-cost document adjusts inventory cost rather than managing the supplier invoice itself, which is registered as an ordinary purchase invoice.

FAQ

What is landed cost?

The total cost of getting a product to your warehouse and ready to sell: the supplier's price plus inbound freight, customs duty, insurance and handling. It is the figure that should drive pricing and margin decisions, not the invoice price.

Should freight be included in inventory cost?

Inbound freight, yes — it is part of bringing the goods to their present location and condition. Outbound freight to customers is a selling expense, not a cost of the stock.

Is import VAT part of landed cost?

Normally no, because it is recoverable — you reclaim it on your VAT return, so it never becomes a cost. Customs duty is different: it is not recoverable, so it is capitalized into the cost of the goods.

How should landed costs be allocated across products?

By value where the cost scales with value (insurance, ad-valorem duty), by quantity where it scales with units (freight on similar items). Weight or volume is theoretically better for freight but usually not worth the data collection.

What happens to landed costs on stock that is already sold?

In most systems, including Nordlet, only stock still on hand absorbs the allocation — restating sold units would rewrite the cost of sales in periods that may already be closed. That is a good reason to allocate freight and duty as soon as the charges are known.