Purchasing and Negotiation Training

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Landed Cost is an important term in the import of goods.  It means that there is a lot more than purchase price that must be taken into consideration in the foreign sourcing decision.  You might be paying $1.00 for an item Ex Works, an INCO term meaning just outside the foreign supplier’s plant door, but after all the applicable fees and costs are paid, that product may cost $2.50 by the time it gets to your door.

Allow significant lead time when placing an overseas order. It can take two or three months for ocean freight alone.  Add problems with customs, documentation and any number of other glitches and receipt after placement of order can be several months.  The costs of air freight is much higher but it’s faster and less risky and even cost justified for small volume, high value commodities.

There are also legalities to observe. Burdensome government forms and filings, and regulatory compliance can be daunting. The importer is responsible for ensuring that imports comply with safety codes and all other applicable laws.

The purchase price is only one component of the cost of an import.  Depending upon a host of supply chain variables, the purchase price could be a small part of the total landed cost.  

These are some of the costs that must be considered beyond purchase price.  (Some may not apply) 

• Ad valorem duties and taxes (VAT)
• Anti-dumping fees
• Automated Export System (AES) filing fee, Letter of Credit (L/C) fees, or other method and cost for payment
• Commissions
• Customs clearance
• Currency exchange costs
• Documentation fee
• Duties
• Export clearance and forwarding fee

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  online training in purchasing, negotiation, and sales

  Foreign    

  • Documentation fees
  • Inland transportation charges
  • Inspection fees
  • Loading charges
  • Vendor packing charges
• Fuel surcharge and service fee
• Fumigation
• Handling and freight transfer fee
• Harbor maintenance fee for ocean shipments
• Hazardous materials surcharge
• Import clearance fees
• Inspection fees
• Insurances            this is important and often mishandled
• Interest
• International transportation charges (air, ocean, and ground transportation)
• Merchandise processing fees (if any)
• Messenger fees
• Ocean
  • Freight
  • Wharfage
  • Container fees
• Security manifest fee
• Storage fees incurred on freight (demurrage)
• State sales or other taxes or fees within that might be applicable for that product or business operation
• Warehousing, deconsolidation, storage, and distribution fees
• US Customs and Border Protection (CBP) examination
• Other government agency examination fees such as Food and Drug Administration, Environmental Protection Agency, etc 

Given this daunting complexity, it is little wonder that most companies starting off in foreign procurement choose to use agents to help navigate through foreign trade.  As organizations become more experienced and the volume of imports increases, the next logical step is to become the “Importer of Record”.