How the United States Dollar Dominated the Global Trade Space

Personnel managing their global supply chains according to recognized best practices will manage their total costs of good purchased or sold through modeling the “landed costs.” Custom Clearance Processing

Landed cost is the total cost of a product once it has arrived at the buyer’s door. What follows are the components that are needed to determine landed costs, including the original price of the item (converted to U.S. dollars, all custom brokerage and handling charges, complete freight and shipping costs, custom duties, tariffs, taxes, insurance, packaging costs and surcharges.

Every supply chain will have some unique factors and variables that impact landed costs that must be taken into consideration. However, the above generic model will serve as a base template for landed cost calculations.

I firmly believe that senior management and a “best-practice mindset” warrants paying attention to this critical detail in global trade and supply chain management.

In an international trade, both parties enter into a purchase agreement that will include either named or by default an “INCO Term,” as defined by the International Chamber of Commerce in Paris, subscribed to by most trading nations of the world that belong to the United Nations.

As an example: Importers into the United States by ocean freight typically buy FOB outbound gateway. In China this might be written as FOB Shanghai.

This means that the buyer will assume all risks and costs once the goods are placed onboard the ocean-going vessel in the port of export from overseas. The key words being “risks and costs.”

A potential additional cost in the import or export transaction will be the cost of marine cargo insurance and typically would be considered a necessary component of reducing the risks involved in international transportation.

Marine insurance, when thoroughly written, offers “All Risk,” “Warehouse to Warehouse” coverage for the buyer at specific terms and a rate of premium to be agreed.

Exporters also need to be concerned with landed costs:

The following recommendations should be considered: 

For example, it might be from sourcing from a country that we have a free trade agreement with, thereby eliminating the duty and tariff.

Companies that import from China are greatly impacted by the 301 tariffs, which added as much as 25% additional cost due to the duty surcharge, which was implemented during the Trump Administration and continued with President Biden’s policies.

By considering another country as a manufacturing source could greatly impact the calculation of duty and tax.

Near-shoring and friend-shoring have grown over the past six years and will likely continue to expand as the risks tied into costs on goods originating in China have created significant exposure to sustainable supply chain management.

Another area would be the HTS number utilized, impacting duties and tax rates.  Keep in mind that it is the country of origin and the product HTS number outlined in a matrix within customs regulations that determine the duty rates.

Mode of transportation will impact landed costs. Many times, air freight is utilized, when ocean freight could be a less expensive option. This means better demand planning and coordination between purchasing/sales/sourcing and the logistics department handling the transportation choices.

Included in this area is control over the suppliers with setting more realistic expectations, tighter control over order status and communications, contractual obligations, and penalties for non-performance.

The pandemic took witness to unprecedented increase in freight pricing all over the world. Through 2022, we saw a normalization of freight pricing take hold.

In 2023, the pricing is moving toward pre-pandemic levels and there are signs that demand is diminishing, which might impact pricing to even more competitive levels.

For companies with larger volumes, negotiating certain incidental costs in a soft freight market is available. Surcharges such as PSS, GRI’s and BAF will also impact landed costs favorably.

To improve the landed cost model, you must first identify the areas of cost and which ones can be impacted favorably. This will work best in a collaborative process internally with all your stakeholders and externally with all your service providers and consultants.

The assessment process should lead to strategies followed by tactics that develop into action steps creating favorable results in reducing “landed costs” in your global supply chain.

Thomas A. Cook is a seasoned global supply chain professional, author of more than 20 books on global trade and managing director of Blue Tiger International. He can be reached at tomcook@bluetigerintl.com or (516) 359-6232. 

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