Men’s Underwear Landed Cost: Incoterms, Duty, Freight and a Worksheet

What landed cost includes

How the Incoterm in the quotation shifts cost

Incoterms are standard trade terms published by the International Chamber of Commerce. They set where the seller’s obligations end and who bears cost and risk from there. The same garment quoted under two different terms is two different prices, so convert both to landed cost before comparing. Name the edition (Incoterms 2020) and the named place in the quotation and in the contract.

Duty and customs value

Duty is usually a percentage of the customs value of the goods. The rate depends on how the garment is classified in the tariff and where it was made. Classification follows the Harmonized System. For men’s knitted underpants and briefs, the six-digit starting points are 6107.11 for cotton, 6107.12 for man-made fibres and 6107.19 for other textile materials. Woven underpants and briefs, such as woven boxer shorts, fall under heading 6207. National tariffs add further digits, and the right code depends on the construction and fibre content of your garment, so confirm it with a customs broker or the importing country’s tariff.

Valuation rules differ. In the United States and Australia, duty is generally based on the transaction value, which excludes international freight and insurance. In the European Union and the United Kingdom, the customs value generally includes freight, insurance and related handling up to the point of entry. The same factory price therefore produces a different dutiable value. Import VAT or GST can use yet another base: in the EU, the UK and Australia it is generally calculated on a value that includes freight, insurance and duty, which is why the worksheet keeps taxes on their own line. Rates, preferential programmes and additional trade measures change over time, so check the current position for your origin and destination before you rely on any rate.

Transaction value can also include items you pay for or supply to the factory, such as tooling, artwork or royalties, and some packing costs. Ask your broker which of your development charges are dutiable. Ask too how to treat a CIF, CIP, DAP or DDP quotation, because freight and insurance are then already inside the price.

Freight: how carton size turns into cost per piece

Ocean freight is charged per container, or by volume for a part load. Air freight is charged on the greater of actual weight and volumetric weight, commonly calculated as length × width × height in centimetres divided by 6,000 for kilograms in air cargo. Express couriers often use a smaller divisor such as 5,000, so check the figure your carrier applies. Underwear is light and bulky, so volume often drives the freight cost more than weight does.

• Cartons = pieces ordered ÷ pieces per carton, rounded up.
• Shipment volume in cubic metres = cartons × length × width × height in centimetres ÷ 1,000,000.
• Freight per piece = freight for the shipment ÷ pieces shipped.
• A pack format that adds bulk, such as a printed box, raises the carton count and the freight per piece.

A worked example with placeholder numbers

All figures below are invented round numbers chosen only to show how the lines add up. They are not quotations, typical costs or real duty rates. Treat the factory price as 100 units of your own currency, so the other lines read as proportions of it. Neither the selling price nor the margin shown is a recommendation.

Gross margin here is the selling price minus landed cost, divided by the selling price. The example shows two things: landed cost is higher than the factory price once every line is added, and the customs valuation method alone changes the result. It keeps destination charges outside the customs value; in some countries handling charges at the port of entry count towards it, so ask your broker. Your own freight, duty and fees will differ. To reproduce the table in the worksheet, enter 1 as the pieces ordered, type each line as an amount for that one piece, enter 10 as the duty rate, and type NO for the first column or YES for the second.

Compare three quotations with the worksheet

1. Put one quotation in each column, with the supplier, Incoterm and named place.
2. Enter the pieces ordered, pieces per carton and the carton size and weight.
3. Enter the factory price and any development, packaging or testing costs charged separately.
4. Add freight, insurance and destination charges as totals for the shipment, taking the figures from your forwarder.
5. Enter the duty rate your broker gives you as a plain number (10 for 10 per cent), and type YES or NO to say whether freight and insurance count towards the customs value. If the quotation already includes freight and insurance (CIF, CIP, DAP or DDP) and the importing country excludes them from the customs value, enter the amount included so it is taken out.
6. Check that the inputs row reads OK, then read the landed cost per piece and the margin and compare the columns.

Questions that make quotations comparable

• Which Incoterm and named place does the price assume?
• What pack format and pieces per carton does it assume, and what are the carton dimensions and weight?
• Are samples, tooling, labels, packaging, testing and inspection included or charged separately?
• Does the price change by colour, size or style, and how is the minimum counted?
• In which currency is it quoted, and how long does the quotation stay valid?
• What are the payment terms, and does any bank or payment fee fall on you?

Common landed-cost mistakes

• Comparing an EXW quotation with a DDP quotation.
• Leaving development and tooling costs out of the per-piece figure.
• Assuming a duty rate before the garment has been classified.
• Costing air freight on actual weight when volumetric weight is higher.
• Forgetting allowances for defects, returns and exchange-rate movement.
• Treating recoverable import tax as a cost, or ignoring that you must pay it before you recover it.