Lesson 3 of 7 Math checked Facts checked against sources on 1 October 2026 15 min

Landed cost, worked end to end

From the supplier's price to the cost on the shelf: freight, insurance, the customs value rule, duty, clearance, financing and currency, with a real EU tariff line.

Firm processes and online tests change from year to year and differ by office. Use this to prepare, and confirm the exact current steps on the firm's own careers page.

Key takeaways

The price on the supplier's invoice is only the start.
Do not add VAT to a business's landed cost: Import VAT is charged on the customs value plus duty, but a VAT-registered business claims it back.
FOB (free on board): the price with the goods loaded on the ship at the export port.
CIF (cost, insurance and freight): the price including freight and insurance to the port of arrival.
Customs value: the value that duty is charged on. Each country's law defines it.

Key idea

The price on the supplier's invoice is only the start. Landed cost adds freight, insurance, duty charged on a value that each country defines in its own way, clearance and inland transport, the cost of money tied up on the way, and the effect of the exchange rate.

The toolkit lesson compared two factories with assumed duty rates. Here you work one shipment all the way through, with a real tariff line and the real rule for the value that duty is charged on.

Words you will meet

FOB (free on board): the price with the goods loaded on the ship at the export port. The buyer pays the sea freight and insurance from there.
CIF (cost, insurance and freight): the price including freight and insurance to the port of arrival. FOB and CIF are two of the Incoterms rules, published by the International Chamber of Commerce, that say who pays for what along the way.
Customs value: the value that duty is charged on. Each country's law defines it.
Ad valorem duty: a percentage of the customs value. Specific duty: a fixed amount per item or per kilogram.
Import VAT or GST: tax charged at the border on the customs value plus duty. A registered business usually claims it back later, so for that business it is mainly a cash flow cost, not a final cost.

The value duty is charged on differs by country

United States: the price actually paid for the goods, which by law leaves out the costs of international transport and insurance. So duty is charged on roughly the FOB value.
European Union: the price paid plus the cost of transport and insurance up to the place where the goods enter the EU (Union Customs Code, Article 71). So duty is charged on roughly the CIF value.
United Arab Emirates: the government's official portal says tariffs range from 0 to 5 percent, and in Dubai most goods pay 5 percent of the CIF value. The UAE is part of the customs union of the Gulf Cooperation Council (GCC).

Worked case

Cotton T-shirts from India to Hamburg

The prompt

A fictional retailer in Hamburg buys 20,000 cotton T-shirts from a factory in Tiruppur, India, at USD 4.00 each FOB. Sea freight is USD 0.30 a shirt and insurance USD 0.02. The EU tariff database (TARIC) showed a duty of 9.6 percent on 1 October 2026 for Indian cotton T-shirts that meet the EU's preference rules, against 12 percent without them. Clearance and port fees are EUR 0.05 a shirt and the truck to the warehouse EUR 0.08. Financing and holding the goods on the way and in stock cost 1.5 percent of their value. Assume USD 1.20 buys EUR 1. What is the landed cost per shirt, and what happens if the dollar strengthens to USD 1.08 per euro?

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The structure

Landed cost = CIF in euros + duty on CIF + clearance and truck + financing
- CIF: FOB + freight + insurance, converted to euros
- EU duty: 9.6 percent of the CIF value
- Fees, truck and financing
- Key: Currency sensitivity

The exhibit

Landed cost per T-shirt at two exchange rates (EUR, rounded)(EUR per shirt)

Landed cost per T-shirt at two exchange rates (EUR, rounded)
Cost item	At USD 1.20 per EUR	At USD 1.08 per EUR
Product (FOB)	3.33	3.7
Freight and insurance	0.27	0.3
EU duty at 9.6 percent	0.35	0.38
Clearance, port and truck	0.13	0.13
Financing and holding	0.05	0.06
Landed cost	4.13	4.57

Working it through

1. CIF in dollars
FOB plus freight plus insurance.
CIF per shirt (USD):4 + 0.3 + 0.02 = 4.32
2. CIF in euros
Divide by USD 1.20 per euro.
CIF per shirt (EUR):4.32 ÷ 1.2 = 3.6
3. EU duty
The EU charges duty on the value including freight and insurance.
Duty per shirt (EUR):3.6 × 0.096 = 0.3456
4. Financing and holding
1.5 percent of the CIF value.
Financing per shirt (EUR):3.6 × 0.015 = 0.054
5. Landed cost
CIF, duty, fees, truck and financing.
Landed cost per shirt (EUR):3.6 + 0.3456 + 0.05 + 0.08 + 0.054 = 4.13
6. Mark-up on the invoice price
Compared with FOB in euros (USD 4.00 divided by 1.20).
Landed cost above FOB (percent):(4.1296 ÷ (4 ÷ 1.2) - 1) × 100 = 23.89
7. At USD 1.08 per euro
CIF becomes EUR 4.00; duty and financing rise with it.
Landed cost per shirt at USD 1.08 (EUR):4.32 ÷ 1.08 + 4.32 ÷ 1.08 × 0.096 + 0.05 + 0.08 + 4.32 ÷ 1.08 × 0.015 = 4.57
8. Cost of the currency move
The rise per shirt times 20,000 shirts.
Extra cost of the order from the currency move (EUR):(4.574 - 4.1296) × 20,000 = 8,888

What the exhibit shows

Landed cost is about a quarter above the FOB price, and a stronger dollar adds more than a tenth again.

The recommendation

The retailer should set its prices from a landed cost of about EUR 4.13 a shirt, not the EUR 3.33 invoice price, and protect the season with a currency hedge. First, freight, duty, fees and financing add about 24 percent to the invoice price. Second, if the dollar strengthens from 1.20 to 1.08 per euro, landed cost rises to about EUR 4.57 and the order costs about EUR 8,900 more. The risk is losing the 9.6 percent rate: without valid proof of origin the duty is 12 percent, about EUR 0.09 more per shirt. As a next step, buy dollars forward for the order and confirm the supplier's origin paperwork before the goods ship.

Do not add VAT to a business's landed cost

Import VAT is charged on the customs value plus duty, but a VAT-registered business claims it back. Count it as cash tied up for a few weeks, not as a cost. A consumer buying from abroad cannot claim it back, so for a consumer it is a real cost.

Currency: the cost that moves after you order

Many goods are priced in US dollars, while the buyer earns euros, rupees or dirhams. Between the order and the payment the exchange rate can move. A forward contract fixes today the rate at which the company will buy dollars on a future date, for a small cost built into the rate. It removes the surprise, but if the dollar weakens instead, the company does not gain. That is the trade: certainty in exchange for giving up the upside.

Timed math drill

A trader in Dubai imports goods with a CIF value of AED 50,000. Most goods entering the UAE pay 5 percent of the CIF value. How much duty is due, in AED?

Timed math drill

A US importer pays a supplier USD 10,000 for goods and USD 1,200 for international freight and insurance. The duty rate is 10 percent. How much duty is due, in USD?

Check your understanding

Why can the same goods pay different duty in the EU and the US even at the same tariff rate?

Terms in this lesson

Landed cost VAT and GST Freight forwarder Sensitivity analysis

Sources for this lesson (5)

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