DDP: Understanding what it means for both international buyer and sellers 

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If you work in international trade or want to run a business importing and exporting goods, you need a deep understanding of several International Commercial Terms or Incoterms for short. 

 

These “Incoterms” are simply standard business agreement terms used in international trade to ensure both the buyer and seller are on the same page when it comes to the obligations they each have regarding shipping the goods to their final destination. 

 

Today our topic of focus is the DDP Incoterm or Delivery Duty Paid, how it’s different from DDU and DAP which we’ll explain later, and when to use a DDP agreement. So without further ado, let’s dive in.

 

What Is Delivery Duty Paid (DDP) Shipping?

 

What is delivery duty paid (DDP) shipping

 

Before we explain what DDP shipping is, let’s explore a little context; shipping goods from one country to another involves a lot of processes. 

 

First, your cargo is picked up from the supplier’s location and then moved to a sea port, train port, or airport terminal, depending on the shipping method you and your supplier use. 

 

Before being allowed to leave the origin country, the cargo must clear customs, then travel by sea, air, or ground to the destination country where they will have to be unloaded to clear customs again and then trucked to the final destination. 

 

In all these stages and processes, Incoterms aim to define who exactly will bear the costs, responsibilities and risks involved. Under DDP, the seller is responsible for all the costs and risks until the cargo reaches the buyer’s specified place of arrival.

 

These responsibilities include arranging for import clearance, tax payment, obtaining the appropriate approvals from authorities in both the origin and destination country, and covering delivery costs.

 

DDP Responsibilities for Sellers And Buyers

 

DDP Responsibilities for Sellers And Buyers

 

Under DDP Incoterms, the seller bears is responsible for:

 

  • Packaging cargo for shipment
  • Preparing a bill or invoice and a contract
  • Loading goods on the precarriage
  • Preparing cargo for export
  • Paying export duties and taxes
  • Transporting the goods to the shipping port
  • Loading the cargo on the main carriage
  • Covering the shipping and transport costs
  • Paying for insurance (not mandatory but you carry liability either way)
  • Importing duties and procedures
  • Customs clearance at the destination country
  • Paying taxes like value-added tax (VAT) if applicable
  • Unloading cargo at the destination port
  • Transporting the goods to the agreed final destination (i.e., the buyer’s warehouses, a 3PL’s warehouse, or an Amazon fulfillment center)

 

Whereas, under DDP Incoterms, the buyer bears these responsibilities:

 

  • Paying for the goods according to the agreed pricing
  • Unloading the goods at your receiving destination
  • Fees associated with DDP shipping for sellers

 

Some costs associated with DDP shipping include:

 

  • Sales tax or Value Added Tax
  • Custom duties required by the destination country’s government
  • Import clearance fees, including custom brokerage, agent fees, and other miscellaneous charges
  • Offering insurance to protect yourself against potential damage or loss during shipping. But only if you choose to offer insurance 

 

This is just a rundown of typical fees associated with DDP exports, so understand the final costs vary based on your circumstances such as the type of goods you’re shipping, the import country, and the country of origin.

 

Lastly, as a seller, it’s crucial to ensure your pricing is competitive by factoring in all the fees involved while still providing value to your customers.

 

Apart from VAT, sales tax, customs taxes and duties, and import clearance fees, there may be other costs like permits, inspections, and certificates that vary by country, making it hard to accurately estimate the export costs beforehand.

 

As a solution, make sure to research the import regulations of every order’s destination country and include any additional fees into your estimates.

 

Doing so allows you to understand the total cost before agreeing to the transaction, provide a transparent solution to your customers, and avoid potential disputes down the road.

 

Incoterms: DDP Vs. DDU Vs. DAP

 

Incoterms DDP Vs. DDU Vs. DAP

 

Now that you understand what inconveniences are and what Delivery Duty Paid (DDP) means, let’s see the differences between DDP, DDU, and DAP.

 

DDU is short for Delivery Duty Unpaid, and similar to DDP, the seller bears responsibility for all risk and costs until the cargo reaches its final destination, EXCEPT that the buyer is responsible for import duties and formalities.

 

The same as DDU, under DAP (Delivery At Place), the seller is responsible for all costs, taxes, and formalities until the cargo reaches the buyer’s specified destination, except for import duties and formalities levied by the destination country.

 

Advantages and disadvantages of DDP

 

Here, we’ll talk about the pros and cons of Delivery Duty Paid. As a heads up, you can think of advantages to buyers as disadvantages to sellers and disadvantages to buyers as advantages to sellers.

 

Advantages of DDP for sellers

 

Competitive advantage

 

In certain cases, sellers who offer DDP can gain a competitive advantage. By offering a total landed upfront cost, sellers can differentiate themselves from competitors who use Delivery Duty Unpaid (DDU), similar to how retailers include shipping costs in the product price but advertise free shipping to differentiate themselves from retailers who require shipping fees.

 

Reduced abandoned orders

 

Offering DDP can also help sellers reduce the likelihood of abandoned orders. When you give customers a total upfront cost, they are less likely to be alarmed by unexpected duties and obligations later on during the shipping and receiving process, leading to more conversions.

 

Disadvantages of DDP for sellers

 

Total responsibility over costs, responsibilities, and risks

 

Under DDP terms, the seller assumes all costs, responsibilities, and risks associated with exporting and importing the goods, including taxes, custom duties, and other fees. So facilitating the delivery of customer goods can result in more operational costs than you forecasted.

 

Subject to value-added tax which varies by country

 

When importing goods, Value Added Taxes often apply and vary from one country to another. This introduces complexity in pricing which can have a significant impact on the profitability of your transaction.

 

Advantages of DDP for buyers

 

Convenience

 

Buyers don’t have to worry about any risks, responsibilities, or costs until the final unloading at their specified place of destination.

 

Predictable costs

 

After a first purchase, buyers can more accurately predict the cost of acquiring those same goods from the same sellers since the nature of the transaction stays the same.

 

No worry about damage during shipping

 

Under a DDP agreement, buyers only have to accept incoming cargo. Knowing that it’s the seller’s responsibility to address the cause of damage and send replacements, buyers are effectively free from worry about shipping damage.

 

Disadvantages of DDP for buyers

 

Slower shipping

 

To minimize shipping costs, most sellers understandably go with the slowest shipping method. Importantly, understand that under DDP terms, buyers have no right to demand shipping times or transit options.

 

Zero control over the delivery process

 

As all the responsibilities associated with shipping belong to the seller, under DDP agreements, buyers have no oversight on the shipping process, thus they can expect greater chances of delays or errors.

 

Sellers will focus on cost savings

 

Oftentimes, sellers will try to save every penny, possibly choosing cheaper transport or packaging options which may result in damage or loss of the cargo. 

 

While buyers are not obligated to pay for shipping mishaps, their business operations might suffer time wastage from a manufacturing or restocking delay.

 

When to Use a DDP Agreement

 

When to Use a DDP Agreement

 

As a Seller:

 

Choosing DDP can be advantageous for sellers in certain circumstances, such as when they’re trying to differentiate from competitors offering DDU and when they want to reduce abandoned orders. However, it is not appropriate in every case.

 

Sellers should understand that DDP is only appropriate when they factor the fees associated with shipping into the customer’s final bill and when they’re consistently shipping goods internationally or planning to do so in the future.

 

For example, if you’re a US-based company with a sizable customer base in the UK and Canada, you’ll likely benefit from DDP.

 

However, if you don’t usually ship international packages and you’ve been asked to ship a one-off sale to a country, you’re better off offering DDU unless you actively plan on growing your presence in that country.

 

As a Buyer:

 

With no need to worry about costs, responsibilities, or risks until receiving time comes around, DDP is clearly a shipping agreement that favors the purchasing party. So for buyers, the answer seems intuitive; choose DDP when given the chance. 

 

However, be prepared for a lack of control over the shipping process and downsides like slower shipping or time-wasting errors caused by sellers trying to save costs on DDP shipping.

 

Final Thoughts

 

If you’ve been paying attention, you should now understand how DDP works, the responsibilities it bestows on each party, its pros and cons, and when or when not to use it. 

 

If you’re interested in learning more about international trade as a seller, check out our article on cross border order fulfillment via the Globallyfulfill blog.

 

FAQs on DDP:

 

What are all the eleven incoterms?

 

Enforced by the International Chamber of Commerce or ICC, the 11 incoterms include:

 

  • Ex Works (EXW)
  • Free Carrier (FCA)
  • Free Alongside Ship (FAS)
  • Free On Board (FOB)
  • Cost and Freight (CFR)
  • Carriage Paid To (CPT)
  • Carriage and Insurance Paid (CIP)
  • Cost Insurance and Freight (CIF)
  • Delivered At Place (DAP)
  • Delivered Duty Paid (DDP)
  • Delivered at Place Unloaded (DPU)

 

For further reading on each incoterm, check out this resource from IncotermsExplained.com

 

DDP vs. CIF – What Are the Differences?

 

DDP stands for Delivered Duty Paid and CIF stands for Carriage, Insurance & Freight.

 

DDP Incoterms are used for all transport modes, while CIF is used only for sea and inland waterway transport.

 

DDP places all costs and responsibilities on the seller except unloading at the final destination, making it more buyer-friendly than CIF.

 

What is the difference between DDP and Ex Works?

 

DDP and Ex Works are opposites. Unlike DDP that places maximum responsibility on the seller, EX Works or EXW places nearly all responsibility on the buyer. Under EX Works, the seller simply has to make an invoice and make the cargo ready for pickup at their location.

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