Whether you're a buyer or a seller, you may have come across several terms used liberally throughout the order and shipping process when looking to ship goods internationally. Before ordering or selling, it's worth educating yourself on what these terms mean.
You've likely come across the Incoterms "DDP" and "DAP" before. Soon after World War I ended, the International Chamber of Commerce (ICC) was formed to push mutual profitability among nations through international trade. DDP and DDU were created as Incoterms to develop a more robust understanding of shipping practices and international commerce standards across countries.
In this article, we'll teach you everything you need to know about DDP, DAP and the advantages of each.
What is DDP?
Within the ICC's shipping jurisdictions, DDP stands for Delivery Duty Paid. In a DDP agreement, the seller assumes financial responsibility for all costs up until the point in which the customer receives the product, including cargo packing, shipping fees, customs clearance, and warehousing. Often, the seller will include these charges within the product's price or the shipment fees so the buyer can partially cover the costs; however, the seller will still be liable for any damages or losses before the buyer receives the delivery.
The seller's responsibilities in a DDP agreement include the following:
- Ensure that lost or damaged cargo is financially covered if the item did not reach the delivery location.
- Manage the export processes at the shipment location, respecting all required protocols.
- Assume financial responsibility for customs clearance procedures at the delivery location.
- Make sure that products and goods arrive at the right international site before ceasing liability.
- Cover all costs of transport from packing areas to delivery locations.
- Organise the carrier contacts with all carriage companies that assist with the delivery process.
What is DAP?
DAP stands for Delivered at Place. DAP and DDP shipping share many similarities. The critical distinction is that the seller lacks financial responsibility after the cargo arrives at the foreign location. While in a DDP agreement, the seller is responsible until the buyer receives the item; this is only true until it reaches the buyer's country in a DAP agreement.
The responsibilities of the seller in a DAP shipping service include the following:
- Provide the licences, permits, and documentation needed for shipping to the pickup location.
- Ensure that the buyer's goods arrive at the correct country and the proper place for the shipment.
- Ensure that lost or damaged cargo is financially covered if the item did not reach the delivery destination.
- Cover all costs of transport from packing areas to the delivery location.
- Provide the buyer with updates regarding their delivery.
DDP vs DAP
DDP shipping services vary only slightly from DAP shipping procedures. The significant distinction separating the two Incoterms is that DDP shipping services ensure the cargo arrives at the buyer's physical location after the shipment is imported. By comparison, DAP shipping services are only responsible for ensuring the cargo arrives at the country's drop-off location.
While DDU is usually the standard, some sellers use a DDP model.
Advantages of DDP
DDP shipping services are one of the most efficient ways to build trust between buyer and seller. The DDP option takes care of every step within the international shipping process for the buyer. Here are some of the other benefits of DDP:
- All delivery logistics are under the same agreement. This allows freight forwarders some peace of mind and helps them avoid unnecessary work.
- There is less risk involved. Since the seller assumes liability until the product has been completely delivered, DDP solutions have a streamlined freight process. Meaning products are less likely to get lost or become unavailable to the consumer during transit.
- You have complete financial transparency. With DDP services, the final tally is known immediately when the customer places an order. This makes receiving cargo much more accessible for importers as they don't need to worry about receiving any unexpected costs.
- The customer can be completely hands-off. In a DDP shipping agreement, the buyer's goods arrive directly at their door without them needing to worry about customs complications or any other shipping requirements. This can be a great way to draw additional business.
Advantages of DAP
Compared to DDP shipping agreements, DAP allows the buyer to assume much more control over their shipping procedures. Here are some of the other benefits of DAP:
- It grants the buyer the opportunity for cheaper options. In DDP shipping services, the seller usually has specific contracted freight forwarders and shipping clients. However, with an inexperienced seller, there's potential for more affordable shipping options that the seller is unaware of due to lack of experience.
- There are fewer legal complications. As a seller, you may be much less aware of the shipping affairs in a foreign country than your buyer. While it's your responsibility to get the cargo there, DAP shipping allows the person more aware of their country's standards to take control.
- It creates more visibility for the supply chain. As a buyer, there is a limit to the amount of reporting you can access with a DDP shipping service. Comparatively, a DAP service offers you the ability to track every step of the cargo's process from the moment it arrives in the country.
- More control for the buyer. In particular, for international buyers looking to maintain a consistent inventory, complete control over the transportation of products once they've arrived at the country's drop off location is often desired. This grants them the ability to control costs and learn of delays as soon as they arise.
Summary
International business trade can be a complicated procedure. Making the right choices about your obligations can be critical to a clean and easy transaction. In this article, we've defined the DDP and DAP Incoterms and described the advantages of each.
If you're still unsure about what Incoterm is right for your business, you can help yourself make the right choice by consulting an international shipping expert. WTA can help you find a solution to your delivery needs. Contact us to find out more.
