What is landed cost in procurement?
Landed cost is the total cost of receiving a purchased item at the location where the buyer can actually use it. In supplier quote comparison, landed cost normally starts with the quoted material price and adds freight, insurance, customs duty, clearance, port or terminal handling, local delivery, unloading and taxes that are not already included. It matters because imported quotes often look cheaper at the supplier level but become expensive after logistics and customs are added. A landed cost comparison is especially important when suppliers quote different Incoterms, ship from different countries, or include different delivery responsibilities. Procurement teams should compare landed cost before recommending a supplier, then separately review technical compliance, warranty and delivery risk.
Costs to include
- Supplier material or equipment price.
- Export packing, documentation and inspection charges.
- International freight, insurance and forwarding charges.
- Customs duty, clearance, port handling and local charges.
- VAT, sales tax or recoverable tax timing where relevant.
- Local delivery, unloading, installation support and site handling.
Incoterms change the comparison
An EXW quote and a DDP quote should not be ranked by headline price. EXW usually means the buyer carries pickup, export, freight, import and delivery responsibility. DDP usually means the seller carries delivery to the named destination, including more logistics responsibility. FOB and CIF sit between those points depending on the named port and contract details. If a buyer compares EXW, FOB, CIF and DDP prices without adjustment, the award can favor the supplier that has excluded the most work rather than the supplier with the best total commercial value.
Simple landed cost example
| Cost item | Amount | Why it matters |
|---|
| Supplier quote | 80,000 | Base price only. |
| Freight and insurance | 6,500 | Needed to move goods to destination country. |
| Duty and clearance | 4,800 | Import cost not included by supplier. |
| Local delivery | 2,200 | Required to reach the project site. |
| True landed cost | 93,500 | Comparable procurement cost before technical risk. |
Questions to ask before comparing imported quotes
- Which Incoterm is used and what named place or port is stated?
- Who pays export charges, freight, insurance, import duty and clearance?
- Is local delivery to the final site included or only delivery to port?
- Are customs documents, certificates of origin and test documents included?
- Is VAT recoverable, non-recoverable or only a cash-flow timing issue?
- Who carries damage or delay risk during transit?
Why landed cost can change the supplier ranking
Supplier ranking changes when logistics costs are uneven. A local supplier may quote a higher material price but include delivery, faster availability and lower import risk. An overseas supplier may quote a lower material price but exclude freight, duty, clearance, bank charges and local handling. The correct comparison depends on the buyer's required destination and risk tolerance. If the project is urgent, lead time and customs uncertainty can be more important than a small price saving. Landed cost does not replace supplier evaluation, but it prevents procurement from recommending an imported quote that only looks cheap because key costs are outside the supplier's offer.
How to document landed cost assumptions
Every landed cost comparison should state the assumption source. Freight can come from a freight forwarder quote, recent shipment history or a supplier clarification. Duty can come from the HS code and applicable customs rate. Delivery and unloading can come from local transport quotations or previous project rates. If a number is estimated, label it as an estimate. This matters because a small change in duty, freight or exchange rate can move the award decision from one supplier to another.
When landed cost is not enough
Landed cost is still a purchase cost, not a full life-cycle cost. It tells the buyer what it costs to receive the item, but it does not include energy use, maintenance, spare parts consumption, downtime, training burden or disposal cost. For simple purchases, landed cost may be enough. For equipment, machinery, technology, vehicles or long-life assets, procurement should decide whether a total cost of ownership comparison is needed. A supplier with a higher landed cost can still be better if operating cost, reliability or maintenance support is stronger.
How landed cost supports negotiation
A landed cost table is useful before supplier negotiation because it shows which cost line creates the gap. If one supplier is expensive because freight is high, ask whether they can ship through a better route or consolidate cargo. If duty is the issue, confirm HS code classification and country of origin documents. If local delivery is high, ask whether collection or direct site delivery changes the price. Negotiation becomes more practical when the buyer can point to a specific cost driver instead of asking for a general discount.
Use the calculator
Use QuoteCostCalc to add freight, duty, delivery and other hidden costs to each supplier offer. For detailed supplier exclusions, use the missing scope checklist before finalizing the comparison.
