Why total landed cost starts with classification

Most businesses think they have their import costs under control. They’ve negotiated hard on purchase price. They’ve consolidated shipments. They’ve put freight contracts out to tender. And yet, many are still leaving 5–15% on the table every single year. Consistently. Without knowing it.

The reason is almost always the same: they’re optimising the wrong things first. Here’s how classification affects total landed cost and why duty costs represent the single largest cost reduction opportunity that very few are actively managing.

What total landed cost actually includes

Total landed cost is the true cost of getting a product from your supplier to your door. It includes purchase price, freight, insurance, customs duties, import VAT, compliance costs, and any penalties incurred along the way. Every single one of those components can be managed, reduced, and optimised.

Most businesses focus heavily on the first two — purchase price and freight — and treat duties and compliance as fixed costs. They’re not. They’re variable. And for many importers, they represent the single largest opportunity for cost reduction that nobody is actively managing.

Here’s how each component breaks down:

Purchase price. The most obvious lever — negotiate with suppliers, benchmark against alternatives, consolidate volume.

Freight. Optimise routing, consolidate shipments, review carrier contracts regularly.

Insurance. Competitive bidding. Often overlooked but worth reviewing annually.

Duties. This is where accurate tariff codes become a strategic, commercial decision, not just a compliance one. The duty rate your business pays is determined entirely by the tariff code assigned to each product. Get the code wrong and you either overpay — silently eroding margin — or underpay, which leaves you exposed to backdated liabilities, penalties, and audit risk.

Compliance costs. The penalties, legal fees, and operational disruption that follow when codes are wrong, documentation is incomplete, or HMRC comes knocking. These costs are entirely avoidable with the right systems in place.

The duty problem nobody talks about

HMRC processed 84 million import and export declarations in 2024 alone. Every one of them depended on a correct tariff code. In our experience, around 2 in every 5 tariff codes are wrong and that has a direct impact on landed cost.

The financial consequences compound in two ways.

1.Overpayment erodes margin quietly over months and years. The British Chambers of Commerce reported in 2024 that 45% of UK exporters still face difficulties with customs procedures, with incorrect commodity codes cited as one of the primary barriers. One UK retailer, identified by customs consultancy Barbourne Brook, uncovered over £1 million in overpaid duties once they audited their classifications properly. That money had been leaking out for years.

2.Underpayment is the other side of the same problem. Morrisons’ £4.7 million liability following an HMRC tribunal on the declared origin of imported aluminium foil is a stark reminder of what happens when classification and origin decisions don’t hold up to scrutiny.

The FTA opportunity most importers miss

There is a less obvious component of landed cost that many businesses don’t actively manage: Free Trade Agreements.

The UK has FTAs in effect with the EU under the Trade and Cooperation Agreement, and with countries including Japan, South Korea, Norway, Switzerland, and developing economies under the Developing Countries Trading Scheme (DCTS). Where goods qualify under these agreements, the duty rate can reduce to zero — but only if two things are true: the goods meet the rules of origin, and the tariff code is correct.

Small and mid-sized businesses consistently underutilise the FTA benefits they’re entitled to. The reason is almost always the same: without accurate classification and proper origin documentation, businesses cannot claim what they’re owed.

A wrong tariff code can turn a 0% rate into a 12% rate, or worse. That impact your profit margin.

Classification puts you at a strategic advantage

Accurate classification is the foundation on which everything else is built.

Get the code right and you know the actual duty rate. You can model the true cost of sourcing from different countries. You can identify where FTA benefits apply. You can make tariff-favourable decisions at the product design or sourcing stage — before the goods are ordered, not after they’ve arrived.

Elizabeth Davies, our Head of Customs Compliance and Classification, says: “Misclassification doesn’t just cost money — it can cost competitive advantage.

The businesses winning on landed cost aren’t just negotiating harder on purchase price. They’re treating classification as a strategic input to every commercial decision — sourcing, pricing, product development, and market entry. It’s the foundation of strategic growth for many businesses expanding internationally.”

If you’d like to understand how accurate tariff codes could affect your total landed cost, our team can help. Get in touch