The container arrives at Saudi Arabia Islamic Port. The goods cost $50,000 FOB from your Chinese supplier. But what's the true cost by the time products reach your warehouse?
Freight charges. Customs duties. Port handling. Clearing agent fees. Transportation. Insurance. Storage. The list goes on.
If you're pricing products based only on purchase price, you're likely selling at lower margins than you think - or worse, at a loss.
What Is Landed Cost?
Landed cost is the complete cost of getting goods from supplier to your warehouse, ready for sale. It includes:
Direct Costs
- Product purchase price
- International freight
- Insurance
- Customs duties and taxes
Indirect Costs
- Port charges
- Clearing agent fees
- Inland transportation
- Handling and storage
- Inspection fees
- Documentation costs
Only when you know the true landed cost can you price products correctly and measure real profitability.
The Saudi Arabia Importer Challenge
Importers operating through Saudi Arabia face specific complexities:
Multiple Cost Sources
Costs come from many parties:
- Supplier invoice in foreign currency
- Freight forwarder billing in USD
- Customs authority in Saudi Riyals
- Clearing agent with various line items
- Transporter for inland delivery
Bringing these together manually is time-consuming and error-prone.
Allocation Questions
When a container holds 50 different products, how do you allocate shared costs?
- By value (higher-priced items bear more)
- By quantity (more units, more cost share)
- By weight (heavier items cost more to ship)
- By volume (space consumed)
Different costs may need different allocation methods.
Timing Issues
Costs arrive at different times:
- Purchase invoice comes first
- Freight billing after shipment
- Customs charges during clearance
- Some fees appear weeks later
Yet you need accurate product costs for pricing and sales.
ERPNext Landed Cost Voucher
ERPNext provides a systematic approach to landed cost calculation.
Link to Purchase Receipts
When goods arrive:
- Create purchase receipt for the goods
- Initial inventory value at purchase price
- Create landed cost voucher
- Link to the purchase receipt
Add Additional Costs
Add every cost component:
- Create accounts for each cost type
- Enter actual charges from invoices
- Specify allocation basis for each
- System calculates item-level allocation
Automatic Recalculation
ERPNext recalculates:
- Updated unit cost for each item
- Adjusted inventory valuation
- Corrected cost of goods sold
- Accurate gross margin reporting
Flexible Allocation
Choose appropriate basis for each cost:
Freight: Allocate by weight or volume Duties: Allocate by value or as specified Handling: Allocate by quantity Insurance: Allocate by value
Multiple methods within the same shipment.
Practical Example
A Saudi Arabia importer receives a container with:
| Item | Qty | Unit Price | Total Value |
|---|---|---|---|
| Item A | 1000 | $5 | $5,000 |
| Item B | 500 | $20 | $10,000 |
| Item C | 200 | $175 | $35,000 |
Total Purchase Value: $50,000
Additional Costs:
- Freight: $3,000 (allocate by weight)
- Customs Duty: $7,500 (allocate by value)
- Clearing Fees: $500 (allocate by quantity)
- Transport: $800 (allocate by volume)
ERPNext calculates landed cost per item considering all factors and allocation methods.
Currency Handling
International trade involves multiple currencies. ERPNext manages:
Purchase Currency
Record supplier invoice in original currency with exchange rate.
Cost Currencies
Each additional cost can be in its own currency:
- Freight in USD
- Customs in SAR
- Other fees as invoiced
Base Currency Conversion
All amounts convert to Saudi Riyals for inventory valuation.
Integration with Business Processes
Landed costing connects throughout ERPNext:
Inventory Valuation
Stock value reflects true landed cost, not just purchase price.
Profitability Analysis
Gross margin calculations use accurate costs.
Pricing Decisions
Set selling prices based on real costs, not estimates.
Supplier Comparison
Compare suppliers including all costs, not just unit price.
Best Practices for Saudi Arabia Importers
Standardize Cost Categories
Create consistent expense accounts for landed costs:
- Ocean Freight
- Air Freight
- Customs Duties
- Port Charges
- Clearing Fees
- Inland Transport
- Insurance
- Inspection Fees
Document Allocation Rationale
Record why you chose each allocation method. Auditors appreciate the logic.
Timely Processing
Create landed cost vouchers promptly. Delayed cost capture means inaccurate interim reporting.
Regular Review
Analyze landed costs by shipment, supplier, and origin country. Identify opportunities for cost reduction.
The Competitive Advantage
Saudi Arabia's trading sector is competitive. Importers who understand their true costs:
- Price products correctly
- Avoid margin erosion
- Identify profitable product lines
- Negotiate better with suppliers
- Compete more effectively
Those who guess at costs often wonder where profits went.
Beyond Saudi Arabia
While this focuses on Saudi Arabia's import sector, the same principles apply across Kingdom of Saudi Arabia:
- Saudi Arabia's Eastern Province importers
- Saudi Arabia's distribution companies
- Regional traders everywhere
ERPNext provides the landed cost foundation for professional import operations throughout the Kingdom and across the GCC.
Know your costs. Control your margins. Grow your business. See also our guides on inventory management and procurement software.