Whether you're a buyer or a seller, you may have come across several terms used 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". They are two of the most popular incoterms set by the International Chamber of Commerce (ICC). An organisation formed to push mutual profitability among nations with international trade.
In this article, we'll teach you everything you need to know about DDP, DAP and the advantages of each.
What is DDP?
DDP stands for Delivery Duty Paid. Within the ICC's rules, DDP means 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. But in this scenario, 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. With DAP incoterms, the seller is responsible for the goods until they are at the buyers premies. However, the buyer is the one responsible for import customs duties, fees, and taxes.
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 destination.
- 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 destination with all duties and taxes paid. DDP places the maximum logistical responsibility onto the seller.
With DAP, the seller is still responsible for delivering the goods to the buyer. However it's the buyer who is responsible for the import duties, fees, and taxes related to the shipment.
DAP vs DDP Differences Table
| Aspect | Delivered at Place (DAP) | Delivered Duty Paid (DDP) |
| Sellers' responsibility | Covers all transport costs to the agreed destination, including export clearance but not import duties and taxes. | Covers all costs, including import duties, taxes, and customs clearance at the destination. |
| Buyers' responsibility | Pays import duties, taxes, and any customs clearance fees. | Only responsible for unloading the goods at the final destination. |
| Risk transfer | Risk transfers to the buyer when goods arrive at the agreed place, ready for unloading. | Risk transfers to the buyer when goods arrive at the agreed place, ready for unloading. |
| Customs clearance | Seller handles export clearance; buyer is responsible for import clearance. | Seller handles both export and import clearance. |
| Best used when | The buyer wants control over import clearance and tax payments. | The seller wants to offer a hassle-free delivery, handling all customs formalities. |
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. Placing maximum responsibility on the seller is generally what happens with online ecommerce orders and is better service.
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's typically easier for the buyer to sort importing duties. Clearing goods through import customs generally requires the company clearing them to have a premises or a power of attorney in the country. Therefore, it's typically simpler for the country importing to take responsibility for that aspect of the trade.
- It grants the buyer more leverage to negotiate price. In taking on customs responsibility, the buyer is in position to negotiate a lower price on the deal with the seller.
- 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.
Challenges with both DDP and DAP
The main difficulty associated with DDP and DAP is that it's challenging for a business in another country to arrange the local delivery from their nation. It's much simpler for the buyer to arrange logistical transportation within the country they are based, than it is for one miles away.
With DDP, the added challenge is that the selling party has to clear the goods through customs in the destination, which may be impossible without a tax ID in that nation or a power of attorney. At the very least, it's more complicated. The only benefit is that it really simplifies things for the buyer.
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. Contact us to find out more.
