Deep-dive guide
Export Incoterms Landed Cost & EU CBAM Carbon Tax Stress Test
Executive industry analysis
An export price is only half of a deal. The other half is who pays for everything between your factory gate and the buyer's warehouse. Incoterms, the standard trade terms published by the International Chamber of Commerce, decide that. On FOB or FCA terms the buyer arranges and pays freight, insurance and import charges, so your price stays clean. On delivered-duty-paid terms you promise a final price at the buyer's door, and you absorb every cost on the way, including freight, customs duty and the clearance work. A quote that looked profitable ex-works can lose money once those costs are counted.
A new cost has joined the list for exporters to the European Union. The Carbon Border Adjustment Mechanism, known as CBAM, puts a carbon price on certain imported goods such as iron and steel, aluminium, cement, fertilisers and electricity, based on the emissions embedded in them and the price of EU carbon allowances. Under normal terms the importer pays, but buyers push the cost back through price negotiation, and under DDP terms it is yours by contract. The charge can be reduced by a carbon price already paid at home, and by cleaner production, so it is partly in your control. The rules, scope and prices change, so always check the current regulation.
The domino model follows one unit through five stages. First, the landed cost the buyer faces, which shapes how much price pressure you meet. Second, the carbon charge per unit, because for carbon-heavy goods it can rival the duty. Third, your DDP exposure, the share of units on which you carry import costs. Fourth, the profit margin on revenue. Fifth, profit. A rise in freight, a higher carbon price or a currency move enters the cascade at different points, and the model shows which one breaks the shipment first.
The iceberg shows what your price sheet does not. Above the waterline sit production cost and origin logistics. Below it sit four items many exporters only meet after the invoice: the carbon charge you absorb, import duty you absorb, freight and clearance on DDP units and revenue lost to a currency move. On a delivered-duty-paid deal to a carbon-intensive category these can exceed the margin you thought you were earning. Use the simulator to find the DDP share, carbon price or freight rate at which your month turns negative, and then decide whether to change terms, price or sourcing.
Formula and methodology blueprint
The model works per month. Revenue is units times the FOB price, reduced by any adverse currency move. Production and origin logistics apply to all units. On the share sold DDP, you also pay freight plus a small clearance cost, import duty on the customs value (price plus freight) and the carbon charge. The carbon charge per unit is embedded kilograms divided by a thousand, times the carbon price, reduced by the share already paid at origin.
- Duty per unit
- D = duty rate × (price + freight)
- Customs duty is charged on the value of goods plus freight at the border.
- Carbon charge per unit
- B = kg CO₂e ÷ 1,000 × carbon price × (1 − paid at origin)
- The cost of the carbon embedded in one unit, after any deduction for carbon already priced at home.
- Landed cost
- L = price + freight + D + B
- What the shipment costs the buyer at the door, which drives how hard they negotiate.
- Net profit
- Net = revenue − production − origin − DDP units × (freight + admin + D + B) − fixed
- The monthly result. The breaking point is where this reaches zero.
- DDP cost per unit
- C = freight + admin + D + B
- Everything you pay on a unit sold delivered duty paid, on top of production and origin costs.
- Currency loss
- X = units × price × adverse move
- Revenue that disappears when the buyer's currency weakens between quote and payment.
Cascading elasticity
Price and unit cost move the margin of every unit one for one, so they are the most elastic levers. The DDP share multiplies freight, duty and carbon together, which makes it the strongest structural lever. Embedded carbon and the carbon price act as a product: halving either halves the charge. Freight, duty and currency are smaller per unit but are paid on every DDP shipment.
Three real-world case studies
Bootstrapped starter
A small exporter on FOB terms
A small manufacturer ships a few hundred units a month on FOB terms and the buyer pays all import costs. Margin is moderate and exposure is zero. Load it to see why FOB terms are the safest starting point for a young exporter.
Scaling mid-market
A mid-sized exporter with cleaner production
A mid-sized exporter ships twelve thousand units a month, sells a minority on DDP and has cut its embedded carbon through cleaner inputs. Charges are manageable and volume spreads the fixed costs. Load it to see how production choices protect margin at scale.
Black-swan crisis
A DDP-only contract with a freight spike
An exporter signs an all-DDP contract just before freight doubles, the carbon charge rises and the buyer's currency weakens. Every shipment now loses money. Load it to see which lever restores the month.
Industry benchmark matrix
| Metric | Danger zone | Industry average | Top 10% elite |
|---|---|---|---|
| Landed cost as a share of FOB price | Above 145% | 115–130% | Below 110% |
| Carbon charge as a share of price (carbon-intensive goods) | Above 12% | 3–8% | Below 2% |
| Share of sales on DDP terms | Above 60% | 20–40% | Below 15% |
| Net margin on revenue | Below 5% | 8–15% | Above 20% |
| Freight as a share of FOB price | Above 20% | 6–12% | Below 5% |
Variables and levers
Units shipped per month
Number of product units you export in an average month.
Lever: Grow volume only on terms where each shipment earns a margin after freight, duty and carbon, because volume multiplies a loss as easily as a profit.
FOB price per unit
Your quoted price per unit with the buyer arranging transport (FOB or FCA).
Lever: Quote carbon and duty separately or add a surcharge clause, so the price protects your margin when charges change.
Production cost per unit
What one unit costs you to make or source.
Lever: Negotiate input costs or redesign for lower material use, since every point of cost comes straight off the margin.
Origin logistics per unit
Packing, inland transport, port handling and export clearance in your country.
Lever: Consolidate shipments and review brokers and packing, because origin handling is small per unit but constant.
International freight per unit
Sea or air freight per unit, which you pay on DDP shipments.
Lever: Compare forwarders and use full-container loads, and avoid DDP on lanes where freight is volatile.
Import duty
Duty rate charged on the customs value (goods plus freight) at the destination.
Lever: Check preferential tariff codes and origin rules, as the right classification can lower duty without changing anything physical.
Embedded carbon per unit
Greenhouse gas emissions embedded in one unit, as declared for carbon border purposes.
Lever: Measure embedded emissions per product and ask suppliers for verified data, because a lower declared figure cuts the charge directly.
Carbon price per tonne
Price of one tonne of CO₂ in the destination carbon market, converted to your currency.
Lever: Model a higher carbon price too, because the charge can rise while your contracts stay fixed.
Carbon price already paid at origin
Share of the destination carbon price that can be deducted because a carbon price was already paid at home.
Lever: Document any carbon price paid in your own country, since it can be deducted from the destination charge.
Share of sales on DDP terms
Share of units sold delivered duty paid, where you bear freight, duty and carbon charges.
Lever: Move customers to FCA or FOB terms and let the importer carry duty and carbon, or price DDP with a margin that covers them.
Adverse currency move
Percentage by which the buyer's currency weakens against yours between quote and payment.
Lever: Quote in a stable currency or hedge, and add a currency clause for long payment terms.
Fixed costs per month
Office, staff, certification and software that do not move with shipments.
Lever: Keep fixed costs flat, because they set the volume you need before any shipment turns profitable.
How to use this simulator
- 1Start from the realistic preset or enter your quote, costs, freight and embedded carbon.
- 2Read the five domino boxes to see whether landed cost, carbon, exposure or margin turns red first.
- 3Press Find my breaking point to learn which freight, duty, carbon price or DDP share pushes profit to zero.
- 4Compare the current plan with the FCA and low-carbon plan over 24 months in the Parallel universe tab.
- 5Copy the share link so your broker or buyer can open the same scenario.
Mistakes to avoid
- Quoting DDP from a stale freight rate. Freight can double within weeks, and the quote stays fixed, so add a validity period or a surcharge clause.
- Treating carbon as only the importer's problem. Buyers push the charge back through price, so it reaches your margin even on FOB terms.
- Computing duty on the product price alone. Customs value usually includes freight and insurance, so the duty is higher than the simple calculation suggests.
- Ignoring currency on long payment terms. A weak month between quote and payment can erase the entire margin on a thin deal.
Frequently asked questions
What is CBAM?
The Carbon Border Adjustment Mechanism is a European Union system that charges importers of certain goods for the carbon emitted in producing them, so that imports face a similar carbon price to EU products.
Who pays the carbon charge?
Legally the EU importer does. Under DDP terms you agree to bear it, and under other terms buyers often negotiate it back into price, so exporters feel it either way.
What is the difference between FOB and DDP?
On FOB the buyer takes over once the goods are loaded and pays freight and import charges. On DDP you deliver to the buyer's door with duties paid, so all those costs are yours.
How can I reduce the carbon charge?
Reduce embedded emissions through cleaner energy and materials, report verified data and document any carbon price paid in your own country, which can be deducted.
Why does currency matter?
If you quote in the buyer's currency and it weakens before payment, the same invoice is worth less in your currency. The model removes that share from revenue.
How accurate is this?
It is an educational planning model with simplified assumptions, not customs, tax or legal advice. CBAM scope and prices change, so confirm current rules with your customs broker.
This is an educational planning model with stated assumptions. It is not financial, tax or legal advice. Replace the inputs with your own figures and verify important decisions with a qualified professional.