International selling, as well as buying goods, have never been more popular. Whether you’re a buyer or seller, it’s critical to understand the expected shipping practices of inventory or desired cargo. This ensures that customers have a pleasant and simplified experience and that items are delivered to consumers effectively.
Having a thorough comprehension of delivery and shipping processes is important to ensure that products are received, and profits are made, especially for international deliveries, which are more complicated than domestic freight.
DDP shipping is a delivery agreement in which the seller assumes all liability, risk, and costs for transporting goods till the buyer receives or transfers them at the delivery point.
The International Chamber of Commerce (ICC) developed DDP to standardise shipping globally; thus, most international shipping transactions use DDP. The benefits of DDP favour the buyer because they assume less responsibility and fewer costs in the shipping process, which places a significant burden on the seller.
This term imposes maximum responsibilities on the seller while imposing minimum obligations on the buyer. The buyer assumes no risk or responsibility until the goods reach the specified location.
The DDP shipping rules state that the seller is responsible for all expenses and risks related to getting the products to the specified location. It is also the only term in which the seller must pay import customs duties.
A DDP arrangement benefits the buyer because the seller assumes the majority of the responsibilities. However, if the buyer remains vigilant and avoids relying entirely on the seller for certain costs, he or she may be better prepared to handle it.
The place of delivery/destination is critical in DDP because all costs and responsibilities are transferred from the seller to the buyer at this point. Both parties to the contract can choose the nominated location.
DDP, like any other Incoterm, imposes additional obligations on the seller. On the other hand, DDP requires the seller to clear the goods not only for export in his country but also for import in the buyer’s country. The seller must also pay all applicable taxes and/or import duties. This could be extremely difficult for the seller because different countries have different rules, and thus the seller may face difficulties obtaining import clearance (in the buyer’s country).
As a result, it is preferable if the buyer assists the seller in obtaining import clearance. Because the seller bears the majority of the risks and costs, the agreement price generally includes all costs and risks.
What is Delivered Duty Paid (DDP) Shipping?
For the ones still wondering ‘what is DDP?’, here’s a clearer DDP definition.
In global trade, the term DDP or Delivered Duty Paid refers to a transaction in which the seller of products consents to bear all costs until the goods arrive at the mutually agreed-upon DDP destination.
Delivered Duty Paid indicates that the seller delivers the goods when they are placed at the buyer’s discretion, cleared for import on the arriving mode of transport, and ready for unloading at the designated spot.
The seller is responsible for all costs and risks associated with transporting the goods to their destination, as well as clearing the products for both import and export, paying any duty for both export and import, and completing all customs formalities.
What is Delivered Duty Unpaid Or DDU?
A DDU is a delivery contract requiring a seller to deliver items to a location the buyer designates. It is the seller’s duty to deliver the products to the specified place safely.
However, the buyer is responsible for paying all import-related expenses, including customs taxes, tariffs, and other chargeable levies. The terms of the agreement must expressly say if the parties wish the seller to pay a portion of the payable fee.
As per DDU agreements, the seller obtains licences and handles all formalities related to exporting an item; it is also accountable for any licences and charges incurred in transit countries and for submitting an invoice at its own expense.
The seller is responsible for all risks until they deliver the products to the designated location; however, they do not need to insure the product..
The buyer is in charge of acquiring all required permits for importing the products as well as covering any associated taxes, tariffs, and inspection fees. The buyer is responsible for any associated risks in this process. All further transportation costs and hazards go to the buyer once they receive the product.
What is Delivered at Place Or DAP?
A transaction in which a seller undertakes to pay for all costs and losses related to the arrival means of transport of products to a certain area is referred to as “delivered-at-place” (DAP) in international trade. The eighth edition of Incoterms incorporated the word “delivered-at-place”, which was released in 2010 by the International Chamber of Commerce (ICC).
Under delivered-at-place agreements, the buyer is responsible for paying import duties and any applicable local taxes, such as clearance and municipal taxes, once the shipment reaches the destination
Merchants can use any means of transportation (or a combination of modes) in a delivered-at-place agreement, which frequently outlines when the buyer bears a financial obligation.
The phrase “delivered-at-place” only means that the seller bears all risks and expenses related to shipping goods to a specific area. This implies that the seller is in charge of every sale element, including the packaging, paperwork, export authorization, loading charges, and ultimate delivery. On the other side, the buyer is in charge of clearing the goods for import and is responsible for doing so.
Incoterms: DDP Vs. DDU Vs. DAP
DDP and DDU are both popular shipping contracts. However, DDP outperforms the other in terms of customer satisfaction. Since the seller considers all fees and documentation in DDP, the end-user or buyer has a stress-free purchase experience when he receives the goods.
DDP provides a better customer experience because it is a cross-border option that includes all fees upfront. It allows the merchant to choose whether to pass those fees on to the customer by increasing product pricing or simply eating those costs.
DDP protects buyers from being duped. Sellers assume all of the risks and costs associated with shipping a product, ensuring that customers receive the products they ordered in the best possible condition. The time and cost of shipping associated with DDP are so onerous that scammers will never consider using it.
DDU (delivery duty unpaid) means that the buyer or end-user must pay the duties after the package arrives in the destination country. When the cargo arrives at the port of the importing country, the customs office usually contacts the buyer. After paying any applicable fees, the buyer must collect the cargo personally.
On the other hand, Delivered-at-place shipping or DAP shipping is a business deal in which sellers consent to presume financial responsibility for all risks and costs associated with transporting goods to a specific location. According to the contract, the seller is accountable for paperwork, packaging, unloading charges, export authorization, and delivery to the location, whether it is a warehouse, factory, or port.
Once the commodities arrive at their intended destination and are ready for unloading, the buyer assumes the cost and risk. The buyer is still responsible for paying import duties, taxes, and unloading fees, as well as providing documentation to Customs and importing the shipment into the given country. DAP shipping is an excellent option for intermodal shipping. A DAP shipping scheme allows for the use of any transportation method (sea, land, rail, etc.) and any mixture of these modes. The seller is only responsible for the shipping costs under DAP Incoterms. All customs, duties, and taxes related to the shipment are the buyer’s responsibility.
Why is DDP Used?
When merchants transport goods by air or sea, many use DDP. DDP can provide significant benefits to buyers by reducing risk, responsibility, and cost. While DDP is a good deal for buyers, it can be a significant burden for sellers if mishandled, as it can quickly reduce profits. Take a look at the reasons why they use DDP:
1. To protect the buyer
Sellers assume all the risks and costs associated with shipping a product, ensuring that customers receive the products they ordered in the best possible condition. The time and cost of shipping associated with DDP are so high that fraudsters will never consider using it.
2. To guarantee risk-free delivery to the final location for international trade
There are many things that can go wrong when exporters send packages halfway around the world. Every nation has its own transportation, import duties, and shipping fees. DDP requires the seller to be conscientious about delivering it only on the most efficient and secure routes.
3. To guarantee the safe delivery of goods by air freight or sea
Safe delivery by sea or air can be difficult based on the product type and location. DDP is a shipping contract that ensures sellers do not take the money and run.
4. To hold sellers responsible for international fees
If a buyer must pay customs fees, the sale may fall through because they are unaware of the cost of these fees. DDP allows for a streamlined shopping experience because the buyer does not have to be concerned about paying international fees because sellers and shippers pay them.
The DDP Timeline
DDP follows a very simple timeline in which sellers bear the majority of the liabilities until the product reaches the buyers.
1. The seller is liable for dropping off the package with the carrier company
The seller will drop the package off with a credible carrier, or the carrier may pick it up. Sellers are encouraged to use reputable carriers because it lowers the overall cost of shipping.
2. The seller ships the package to its destination
The seller chooses a dependable logistics partner. With just a reliable shipping partner, the seller assumes less risk and can be confident that the package will reach the customer. They can send packages in any mode of transportation, including ships, planes, and cars.
3. The package includes VAT on arriving at the destination
The seller pays the VAT, which is another advantage for the buyer.
4. The package goes to its final destination from where the buyer is liable
The buyer is liable for the actual product once the package arrives. Here onwards, the seller is released from all his responsibilities.
Sellers Beware: DDP fees
1. Shipping fees
All sellers must remember that shipping goods by sea or air can be costly. Before you begin with DDP shipping, you should determine the amount it will cost to transport the product internationally.
2. Import and export customs duties
Improper DDP handling can cause delays because customs will likely scrutinize arrivals. If you choose an untrustworthy shipping service because of lower shipping costs, it might delay your delivery, and your customer might have to go through unnecessary hassle.
3. Damage fees
Any damage to products is a cost borne by the seller. As the seller, you will be responsible for any damage to the products. You may even have to ship them again to their destination.
4. Shipping Insurance
Many sellers purchase insurance for the items they ship, and the sellers bear the cost. This is, however, not obligatory.
The seller is responsible for paying the VAT under DDP. However, changes are possible with the buyer’s and seller’s consent. VAT can be expensive, sometimes equating to 15-20% of the purchase price plus duty. In many cases, the buyer can qualify for a VAT refund based on what they do with the products. This means you must acquire VAT; at worst, you must acquire VAT while your customer receives a VAT refund.
6. Storage and demurrage
The seller must bear the costs of customs clearance. This includes any demurrage or storage fees incurred due to delays by customs, other government agencies, delivery drivers, and ocean or air carriers. These unforeseen expenses have the potential to reduce or eliminate your profits drastically.
DDP Agreement: Buyers And Seller’s Responsibilities
Let’s discuss the responsibilities and obligations of both buyers and sellers below:
Product loading and unloading
Once the seller has delivered the goods, the buyer has to unload them. The buyer is responsible for unloading and loading the goods if the agreed-upon place of delivery is their port.
Conditions relating to delivery and transportation
Typically, the buyer has no involvement in the transport or delivery-related activities under the DDP incoterm. However, suppose the designated location is a port in the buyer’s nation. In that case, the buyer will be responsible for loading the goods and covering the cost of transportation from the port to the warehouse.
Customs and duty clearances
The buyer is not responsible for customs because the seller will also handle the import customs. However, because import clearance procedures can be risky in some cases, the process may be carried out by the buyer, who is more familiar with local requirements and practices, such as GST and VAT taxes.
If both sides consent that the buyer will choose the delivery location, it is the buyer’s responsibility to notify the seller. In addition, the buyer must provide sufficient notice to the seller regarding the timing, delivery terms, and destination. This procedure can be specified in the contract and implemented accordingly.
The seller provides the buyer with proof of documents, so the buyer has no obligation in terms of DDP documents. However, in emergency situations, the seller may require the buyer’s assistance obtaining paperwork for clearing import procedures.
The buyer is responsible for all risks and liabilities of the goods before the seller receives them, i.e. from the port to the door.
Packing and loading costs, delivery and transportation costs, shipment costs for freight forwarding fees, loading and terminal fees until port, duty and insurance charges, and custom clearance costs are all the seller’s responsibility.
Conditions of transportation and delivery
The seller is responsible for the delivery of goods until the contract’s parties agree upon the place of destination under the incoterm DDP. Again, the seller pays the DDP freight. Road transport, shipping transport, and nominated place transport are examples of transportation-related activities that might be a part of the process.
Product loading and unloading
DDP includes the loading and unloading procedure, which the seller typically performs. This means that the seller bears responsibility for the entire course of action.
- The first stage involves loading goods and transporting them to the port.
- The second stage involves unloading the goods and preparing them for shipping.
- The third stage is the loading of goods for shipping.
DDP risk transfer means that the seller bears all risk and responsibility for the goods until the point of delivery.
The seller has no obligation to insure the goods for the buyer, but as part of the customs clearance procedure, they must acquire goods insurance.
Clearance of duties and customs
The seller must pay customs duties and deal with customs clearance procedures when exporting DDP. They are responsible for the export customs procedures and the import recorder, which includes the payment of all duties and taxes in the destination country.
Fees for damage
If the shipment faces any damage, the seller must bear the cost of the damage as well as the reshipment of the new products.
Costs of demurrage and storage
The seller bears the cost of storage and demurrage in the event of delays by delivery drivers, customs authorities, other government agencies, and air/ocean carriers under DDP. These are unanticipated expenses that can eat into profits. As a result, it is preferable to work with a reputable logistics partner and know the cost ahead of time.
The seller must notify the buyer of delivery and transportation terms during the shipment process.
Advantages And Disadvantages of a DDP Agreement
DDP means that the customer does not have to worry about any unexpected fees at the time of delivery or issues relating to shipment damage while in transit. The vendor manages everything until the buyer accepts the shipment at the stipulated delivery location.
Customers expect this when purchasing goods, so DDP helps you eliminate unnecessary risks or unexpected fees for your consumers during delivery. Here are the advantages and disadvantages of DDP-
DDP advantages for the buyer:
No liability for any costs relating to shipment and delivery
The buyer is not liable for any delivery costs, taxes, or other unexpected charges incurred during the shipping and delivery procedure. This is often advantageous because there can be unknown costs when shipping, as both the export and importing countries may require varying degrees of inspection.
No hassle for the buyer
Once the merchant ships the goods, the buyer must simply wait for their cargo to arrive and accept it. This can relieve a lot of stress from the buyer because they know that anything that happens to the products in transit is the seller’s responsibility.
No added expenses
They have no added expenses to factor in. As the name implies, ‘Delivered Duty Paid’ indicates that the buyer has factored the cost of delivery and responsibilities into the price of the goods. They will be responsible for no additional costs once the products have arrived safely.
Advantageous if the purchase agreement is right
DDP becomes more beneficial to buyers if they can frame their purchase agreement to reduce the likelihood of late deliveries and unqualified logistics companies.
Disadvantages of DDP for buyers:
No control over the shipping
The buyer has very little influence over transportation. As a result, the buyer may or may not have transportation information. Furthermore, the buyer has no way of knowing whether or not the local agents chosen by the seller will be able to handle the consignment.
Since the seller bears all the shipping costs, they may choose less expensive transportation to save money. This may jeopardise the quality and cause delays in shipment.
Delayed communication with the seller
In the event of a shipping delay, the buyer has to communicate with the seller to assist in resolving any issues. Because sellers and buyers are frequently in different time zones, there may be a communication gap, and delays can last longer than if the buyer could communicate directly with the local shipping agents.
Incompetent freight forwarders can make errors
There is a high likelihood of error because the supplier has to know about VAT, customs clearance, and import duties in the destination country. Even if the supplier believes their local freight forwarding company can assist, the buyer has no way of knowing whether the local agents are capable of handling the delivery. Incompetent freight forwarders risk making mistakes that spiral out of control and cost more money to fix.
The buyer has to pay for the goods even in case of a delay in shipment
Delays caused by DDP Incoterms can be attributed to the seller selecting the wrong shipping company to ship the cargo. Most of the time, the seller could solve the problems by paying more money. Given that the buyer has already accepted the goods and the seller only needs to fulfil their obligation under the agreement, there is little incentive for the seller to decrease their profit margin in order to appease the customer. Sellers already know that the buyer will pay for the product regardless of when they deliver it.
When To Use A DDP Agreement?
The best time to consider using DDP is when supply chain expenses and paths are stable and predictable. Use these terms as well if the seller expresses trust in sending their products to your nation and has a successful track record of delivering to other customers under DDP Incoterms. If you trust your vendor and their freight forwarder, only choose DDP.