Getting a total landed cost may seem overwhelming; it doesn’t need to be. In fact, calculating a landed cost can be simple as long as you understand your products and the tools you are using to calculate a total landed cost.
Decoding Landed Cost
Perhaps the most important item to understand about landed cost is that duty and tax is not a landed cost. A total landed cost is made up of much more than duty and taxes. Zonos total landed cost calculation includes duty and tax as well as any other charges that might be incurred, depending on the shipping carrier and service level used.
What makes up a total landed cost?
- Advancement Fee
- Brokerage Fee
- DDP Fee
- Local Currency
- Other Fees
Each country taxes differently. Some countries have a general consumption tax typically referred to as VAT (Value Added Tax) but also as GST (Goods and Services Tax). Australia and Canada both have GST, plus Canada also has HST, PST or QST depending on the province. Even VAT and GST can calculate differently depending on the destination. For example, into the EU, VAT is calculated on the entire order total, including VAT on shipping costs and duty costs. Zonos will calculate the appropriate tax rate, by country, including when de minimis value affects the calculation. Some destinations like Hong Kong do not have taxes applied to their imports.
Duty is a type of tax typically determined by the HS code for the imported item. Zonos will dynamically assign your items an HS code in the Zonos Checkout or Zonos API. In many cases, eCommerce orders will incur taxes but not duty. One example would be imports under the de minimis duty to the EU but not under the de minimis VAT. Another example would be an item that gets preferential treatment on duty because the item is manufactured in a country where a free trade agreement (e.g., NAFTA) is in place with the destination country.
Many carriers’ customs brokers will pay the duty and tax in advance to local customs and will charge a fee for fronting the cash. Shippers will use different terms for basically the same service, and in most cases, they will charge a minimum amount (in the destination currency) as well as a percentage of the amount of money they fronted. These fees can be very frustrating to shoppers because they are not well disclosed by the carriers or online retailers.
to-may-toe or tomato
to-mah-toe? Just to make it super easy each shipping carrier uses different terminology to describe their advancement fee. To help you decode advancement fees below is a cheat sheet for shippers and their jargon for an advancement fee. This information can help with asking for the right international fee waivers in a negotiation with a carrier like UPS, FedEx, or DHL.
|Carrier||Advancement Term||Service Level|
|UPS||Bond Fee||Standard to Canada|
|UPS||Disbursement Fee||Express, Saver, Expedited|
|FedEx||Advancement Fee||All services|
|DHL||Payment Deferment||DHL Express|
The impact of advancement fees on your international customer’s imports can be very high. In some cases, it can be higher than the taxes, duty, or both combined. Also to compound the issue, these charges are also subject to VAT. Into the UK, FedEx will charge ￡12 (15.87 USD) plus VAT on the fee so it can be very cost prohibitive if you don’t waive these fees. Below are some examples of these fees.
|Carrier and Fees||Destination||Minimum Amount or Percentage|
|FedEx Advancement Fee||United Kingdom||2.5% of the advance or ￡12 GBP, whichever is greater|
|UPS Disbursement Fee||France||2.5% of the advance or €14 EUR, whichever is greater|
|DHL Payment Deferment||Japan||2% of the advance or ¥1000 YEN, whichever is greater|
Zonos landed cost calculates the different advancement fees by carrier, country, and currency. These fees are charged by the carrier in the destination country (e.g., UPS France) and the carrier’s duty tax APIs many times do not calculate these fees.
Whether or not you bill duties and taxes to you as a shipper or let your customer pay these charges, they are billed either way. If you can negotiate a discount on the advancement fee, we recommend sending shipments DDP since it typically only applies to your negotiated agreement with that carrier. If you have a negotiated advancement fee and the shipment is sent DDU the end customer will likely still get the book rate on the advancement fee.
UPS and FedEx both have brokerage fees on ground shipments into Canada. UPS Standard to Canada charges a brokerage fee called “Entry Preparation Fee” and FedEx charges a “Clearance Entry Fee”.
|Carrier Service||Shipment Value (CAD)||Entry Preparation Fees|
|UPS Standard to Canada||$60.01 CAD - $100 CAD||$19.95 CAD|
|FedEx Ground to Canada||$60.01 CAD - $100 CAD||$19.30 CAD|
UPS and FedEx do not charge brokerage fees on international air shipments into Canada. However, as outlined, they will still charge advancement fees. To see an example of how brokerage fees can impact a landed cost refer to our Zonos UPS Brokerage Fee Calculator.
In small package shipping, DDP (Delivery Duty Paid) is a loosely used term to describe the process of billing duties and taxes back to you as a shipper. Both DHL and UPS charge a DDP fee, but FedEx does not. In the case of international mail and parcel providers like DHL eCommerce, RR Donnely, APC Logistics, and Landmark, they don’t charge a DDP fee in most cases. Confirm with your provider what fees you are getting charged and you can waive or reduce them in the Zonos platform.
|Carrier||DDP Description||DDP Fee|
|UPS||Duty and Tax Forwarding Surcharge||$15 USD|
|DHL||Duties and Taxes Paid (DTP)||$15 USD|
|FedEx||Bill Duty and Tax to Shipper||$0|
Zonos landed cost also calculates currencies mid-market (FX) foreign exchange rates to help get a landed cost. It is necessary to understand how this helps to get to an appropriate landed cost and also how it can cause a slight difference in the calculated landed cost at checkout vs. the actual billed landed cost. A landed cost calculator has to take into account currency fluctuations since many of the clearance fees are in the local currency. For example, if an order completed today and you shipped it DHL Express to Japan a few days later, the advancement fee you calculated at checkout could have been $8.79 USD (1 JPY = .008791 USD). However, if it cleared customs one week later and the exchange rate was .008587 USD than the USD amount is now $8.56 USD.
The majority of the time the FX fluctuations are minor and don’t have a significant impact on the total landed cost. However, this can cause discrepancies when you reconcile the duty and tax bill since you will win some and lose some. The only way to eliminate the risk of currency fluctuations is to use a landed cost guarantee service like the Zonos Landed Cost Guarantee. However, as with any guaranteed service, profit margins are built into the cost. Be sure to ask the right questions to any provider that offers a landed cost guarantee to understand the additional costs built into the guaranteed landed cost.
There are other less frequently charged carrier or customs fees that can be incurred on an international shipment. Additional line-item fees are charged by UPS and FedEx for having an entry that goes over five tariff lines. Government bureau’s like the FDA may have fees that could be applied to shipments. If you are aware of a fee that could be charged on your import, please notify us to ensure the correct landed cost calculation.
Example Landed Cost Calculation Breakdown
The following amounts are needed in this example to calculate a landed cost shipment to the UK with a generic carrier.
- Product total = $180 USD
- Shipping total = $30 USD
- VAT = 20%
- Duty rate = 4.5%
- UK Advancement Fee = 11.00 GBP or 2.5% whichever is greater
- DDP Fee = $15 USD
- 1 USD = 0.76 GBP British Pound Sterling
|Line item||US Dollar||British Pounds|
|4.5% Duty on Product||$8.10 USD||￡6.16 GBP|
|4.5% Duty on Shipping||$1.35 USD||￡1.03 GBP|
|20% VAT on Product||$36 USD||￡27.36 GBP|
|20% VAT on Shipping||$6 USD||￡4.56 GBP|
|20% VAT on Duty Charge||$1.89 USD||￡1.44 GBP|
|11 GBP Advancement Fee||$14.47 USD||￡11 GBP|
|20% VAT on Advancement Fee||$2.89 USD||￡2.20 GBP|
|$15 USD DDP Fee||$15 USD||￡11.40 GBP|
|Total Landed Cost||$85.71 USD||￡65.14 GBP|
Questions to ask when looking for a duty and tax calculator
- Do you require a harmonized code?
- If yes, to the 6 or 10 digit?
- Can your API or Checkout calculate duty without a harmonized code?
- Do you calculate a total landed cost, not just duty and tax?
First, customers want and expect a better shopping experience without the surprise of additional costs when your product arrives at the doorstep. Showing a total landed cost removes the unknown for your international customers, giving them a superior customer experience.
Second, get as many of these carrier fees reduced or waived. Unfortunately, many carrier representatives aren’t even aware of all of these fees. Your ability to understand these fees and address them will allow you to negotiate a reduction or removal of them in many cases and will result in higher conversion, happier customers, and reduced customer service headaches.
Can I see the breakdown of landed cost at the checkout?
Yes, to see a breakdown of the landed cost inside of an Zonos Checkout you must first be logged in. After logging in, get a shipping quote and make sure duty and tax are paid with that shipping method. Then in the checkout, click on the “Show/Hide Tax Breakdown” on the bottom left-hand corner of the page to see a breakdown of the taxes, duty, brokerage and other fees.
Can I see a breakdown of a landed cost on a completed order?
Yes, go to the order in the Zonos backend and click on the words “duty & tax” underneath the total for the order. It will then show you the breakdown of the costs.