When sourcing products from abroad, buyers should negotiate with the suppliers to save costs and increase profit. But this is not sufficient to create a meaningful purchase as you may end up paying much more when the final goods arrive. Shipping costs and import duties make up a significant part of the total sourcing costs. Hence, you need to know in advance the final costs of the imported products to make an informed decision about the construction materials sourcing operations.
This will allow you to plan how much money you need to invest in sourcing the products and shipping them to their destination. It will also help you plan sales price and profit data. So, let us examine the various cost considerations to make when sourcing materials from abroad.
What is the Landed Cost?
When it comes to construction materials sourcing, landed cost is the final cost of a product along with all related transportation and logistics costs required to deliver the goods to the required destination. Buyers should know about any additional charges, fees, and currency conversions beforehand before calculating the landed cost of a product. Some import costs include currency conversion costs, cost of products, import charges, customs clearance fees, international freight and logistics charges, local delivery, import duties and taxes, etc.
When it comes to sourcing materials, there are apparent and underlying costs. Thoroughly understanding the landed cost can bring a lot of clarity to your cost estimations. Knowing this will also enable you to evaluate your business performance overall, thus maximizing your pricing by ensuring that you know exactly how much you are paying for inventory. It may also allow you to analyze your supply chain and identify where you can cut costs.
Knowing the landed costs will help you calculate whether you will be able to make a profit. However, estimating the landed costs can be challenging unless you have a full idea of your entire costs to predict how high the costs will be. Hence you need to be aware of predicting and estimating the right value which should be as close to the actual cost as possible. To calculate the landed costs, you need to know some key costs that are discussed below and apply them properly to each product.
Product Cost
The cost of the product is the largest component of the total price, which is negotiated between the buyer and supplier. The agreed terms generally include FOB or EXW. The former is always higher as it includes inland and customs fees. So, if the negotiations are done for these two, the buyer will be responsible for all remaining costs.
Shipping Costs
This is affected by many factors. There is much more to shipping than just boxing teh goods and putting them on a boat. You need to know that there are costs associated with every aspect of the shipping process. This includes packing, handling, crating, and freight. So, understand exactly what you are getting in your contract with a freight forwarder since there are many different options of varying seller responsibility and liability.
When it comes to shipping methods, the transportation of small-volume goods is divided into shipping by sea, air, and express delivery. On a general note, shipping by sea is the cheapest, followed by air. Express delivery is the most expensive. Once you select the shipping method, the timelines will also affect the price. Higher prices accompany faster shipping timelines. This means that choosing the slowest sea freight is often the cheapest.
However, if you want to make a more detailed analysis of the transportation cost, consider the terminal handling charges, freight insurance, clearing fees, handling fees, document fees, surcharges, and security surcharges. To get the most accurate shipping rates, make sure the price the supplier quotes covers all costs. You may contact the freight forwarders to get a confirmed quotation to get products shipped to your location.
Customs
Each country has its own authority to supervise the flow of goods in and out of its borders. The agencies are also responsible for collecting tariffs, duties, brokers' fees, value-added tax, and harbor fees.
Risk
The cost of avoiding risks can add up, but not covering them will be more costly. Compliance, insurance, quality, and safety stock inventory are vital considerations.
Overhead
Operating costs also affect the landed cost calculator. Overhead costs include due diligence costs, purchasing staff, exchange rates, and travel.
To Summarize
So when calculating the total cost of imports, all factors need to be taken into account, or you
could be taking a high risk of loss. If you don't take enough time to understand the landed cost, you could face unexpected fees, which could make your sourcing process unviable. So make sure you know the key costs needed to calculate the landed cost and appropriately apply them to each product in order to get the final landed cost per item.
