Total Landed Cost Calculation - Part 4

Posted by Mollie Leon on Tue, Jun, 21 2016 @ 8:23 AM

Import-management-company.jpgIn a previous webinar, Amber Road discussed why for today’s companies, a landed cost management capability is not only important, but essential.

We have transcribed the webinar to explain landed costs in more detail.  If you would like to watch the archived presentation, please click here.

If you would like to read Part 3, please click here.

Continued from Part 3

If I go to a county of import, Russia, and I again pick the same tires as those in the Brazil example, you'll see now that things have changed. Whereas before we had different types of tires for different types of vehicles, now in Russia I've got 3 different possible classifications for a car tire. There is one that's less than 15 inches, one that's 15 but no more than 16 inches, and one that is other. If I select one of those and go through and say that we're going to export these from the United Kingdom, you will see there is a difference in quantity in kilograms and pieces.

If I now pick the United Kingdom again, and use the same value as the Brazil example, the commercial quantity is different. If I run my calculation again, you will see that when we calculate customs duty in Russia, it is based on different rates for different thresholds of value. Each one of those is identified here as a banding so that you're able to reconcile and understand and are therefore able to confirm and calculate that landed cost. Again, this is fundamentally important in terms of understanding what this means to a landed cost and bringing goods into Russia.

UK Landed Costs into China

Here is a third example with China. Again, we will use tires. You will see the difference in width for tires compared to Russia. In China, we also have the added complication that it can be a radial tire or a rubber tire. This information is critical in terms of understanding the landed cost. For this example we will use non-radial tires. When I do an export, you’ll see kilograms and pieces as the measure of units from custom's perspective. The country of export in this example is Thailand.

We will use the same value as the previous examples and again send by sea. Then, we have our destination freight. What we'll see on this scenario, and the reasons that I selected a rubber tire as opposed to a radial tire, is there is a consumption fee of 3%. This 3% is an additional form of indirect taxation on your import. If we had selected the first option, given it's a radial tire, that fee is not applicable.

You will also see that this good could be imported and duty free, provided that the Thai export and the Chinese import criteria, identified under the Asian Framework Agreement, are met. If not, there is an MFN (most favored nation) status between the two countries, that would mean the duties of 10% could be applied, if the more preferential rate of zero could not be met.

To be very clear, if you have not taken into consideration any of the aspects of preferential requirements, you could be paying 50% import landed cost duty. Now, of course, that is a serious amount to be considered when we could potentially bring those goods in for zero. You only have to look at the total landed cost summary to find out what the differences could be.

Stay tuned for the next post post where we will explore landed costs in more detail! In the meantime, check out our industry report, The Evolution of Supply Chain Visibility and Total Landed Cost in the Global Supply Chain. 

Supply-Chain-Visibility

Topics: Landed Cost Calculation, Import Management, Global Sourcing

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