Reading a quotation: the four numbers that decide landed cost

A quotation arrives, and within a day the conversation has narrowed to a single line on it. Unit price is visible, comparable and satisfying to argue about. It is also, for most of what a wholesaler moves, the number with the least influence on what the goods finally cost to have in a warehouse, cleared and ready to sell.

Landed cost is built from four numbers, and three of them are routinely left unexamined until the invoice arrives: the carton cube, the commodity code, and the minimum order quantity. Any one of them can absorb a price concession entirely. Together they regularly reverse which of two quotations was the cheaper one.

Why the unit price dominates the conversation

There is nothing irrational about focusing on it. Unit price is the only figure on a quotation that is directly comparable between suppliers without further work, it is the figure a buyer is measured on internally, and moving it by four percent produces something concrete to report. The other three require questions, and the questions take a form most buyers were never trained to ask.

That asymmetry is well understood on the other side of the table. A quotation can be made to look competitive on the line the buyer will read first, while the cost sits in the packing specification, in the classification, or in a quantity commitment further down the page.

Carton cube is freight in disguise

Ocean freight is bought by space. A 40ft high cube container offers roughly 76 cubic metres of internal volume, of which something like 65 to 70 is realistically usable once pallets, dunnage and stow inefficiency are allowed for. A 20ft offers about 33. Groupage is charged per cubic metre or per 1,000 kilograms, whichever is greater, so for anything light the cube is effectively the whole freight cost.

Two suppliers quoting an identical unit price can differ by fifteen percent or more on freight per unit purely through how they pack. Individually boxed against polybagged, a master carton sized to the product against one sized to the pallet, void fill against a tight stow. None of it appears on the price line and all of it appears on the freight invoice.

The figure you need is the per-unit cube: master carton volume divided by units per carton. Ask for external carton dimensions and units per carton with every quotation, and work it out before you compare anything else.

The commodity code decides the duty

Duty is charged against a commodity code, and the code follows composition and construction rather than the product name. The first six digits are the Harmonised System, maintained by the World Customs Organization and identical across more than two hundred countries. The United Kingdom adds four more: import declarations use a ten-digit commodity code, export declarations eight.

Those last digits are where the money is. Two codes that both plausibly describe the same article can carry rates several percentage points apart, and the deciding detail is often something a supplier states loosely — the proportion of a fibre in a blend, whether an upper is leather or coated textile, whether a group of items is presented as a set or as components.

Minimum order quantity is a financing decision

Minimum order quantity is presented as a production constraint, and frequently it is one — a machine setup, a fabric roll, a minimum batch in a filling line. But the price attached to it is a proposal about your balance sheet. The additional units are not a discount. They are inventory bought in advance, at a price agreed before anyone knew whether it would sell.

Holding that stock costs money in a way that never appears on the quotation. Once capital, storage, handling, insurance and shrinkage are added, planners generally work to somewhere between twenty and thirty percent of inventory value a year. In apparel and cosmetics a second clock runs alongside it: a season closes, a shelf life shortens, and goods that miss their window are not discounted against plan — they are sold at whatever clears them.

Take the quantity you will genuinely move in a period you can forecast, ask for the price at that number, and compare like with like.

A worked comparison

The arithmetic is easier to trust with figures against it. Two quotations for the same footwear line, five thousand pairs, delivered into the United Kingdom. The rates below are illustrative rather than quoted from a tariff, but the shape of the result is entirely ordinary.

• Quote A — 9.50 US dollars a pair, 12 pairs per carton, carton 0.075 m³, classified at 8 percent duty.
• Quote B — 9.10 US dollars a pair, 10 pairs per carton, carton 0.082 m³, classified at 12 percent duty.
• Ocean freight at 38 US dollars per cubic metre, with duty charged on goods plus freight.

Quote A ships 31.3 cubic metres and lands at about 52,600 dollars, or 10.52 a pair. Quote B is four percent cheaper ex-works, ships 41 cubic metres because it packs ten to a carton instead of twelve, and lands at about 52,700 — 10.54 a pair. The cheaper quotation is the more expensive shipment, and the four percent that was negotiated so hard never existed.

What to ask for before you compare

1. 01External carton dimensions and units per carton, for every line on the quotation.
2. 02Gross and net weight per carton, since groupage charges on whichever of weight or volume is greater.
3. 03The full specification the classification depends on: composition by percentage, construction, and how the item is presented for sale.
4. 04The price at the quantity you intend to buy, not only at the supplier's preferred break.
5. 05The Incoterm the price is quoted on, so that two quotations describe the same scope of cost and the same transfer of risk.
6. 06Payment terms, because a deposit paid four months before the goods arrive is working capital with a price on it.

None of this is exotic. It is four questions asked before the negotiation rather than after it, and it changes which supplier you choose often enough to be worth the hour. The buyers who consistently land goods cheaper are rarely the hardest negotiators on unit price. They are the ones who established what the unit price was actually worth.