A situation wherein the seller of goods bears the cost of transporting them to a place specified in the contract
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The term Delivered-at-Place (DAP) is used in international trade to describe a situation wherein the seller of goods bears the responsibility and cost of transporting them to a place specified in the contract. The seller will also be liable to pay for any potential losses arising in transit. In such deals, the buyer or the importer of the goods must pay for customs duty, import tariffs, local taxes and unload the goods.
The ICC (International Chamber of Commerce) is a large representative institution of 45 million companies that promotes and facilitates international trade. The ICC periodically publishes a set of International Commercial Terms, or Incoterms, for the purpose of bringing clarity in the terms of the contracts for international business transactions. Delivered-at-place was first introduced as an Incoterm in its 2010 publication.
Summary
- The term Delivered-at-Place (DAP) is used in international trade to describe a situation wherein the seller of goods bears the cost of transporting and delivering them to a place specified in the contract.
- In such deals, the buyer or the importer of the goods must pay for custom duty, import tariffs, local taxes and unload the goods.
- The ICC (International Chamber of Commerce) first introduced DAP as an international commercial term in a publication released in 2010.
Understanding Delivered-at-Place
For example, a buyer in London enters into a DAP deal with a seller from New York to purchase a consignment of goods. It means that the seller from New York has to pay to transport the goods from their storage to the port and from the port to London.
If the goods are damaged in any way while they are being transported, the seller will have to bear the cost as well. Upon the arrival of the goods at the port in London, the buyer must pay for customs duty, import tariffs, and other local taxes.
If the contract mentions the terminal destination as the port in London, the seller does not have to pay further freight. However, if the terminal destination is the buyer’s warehouse, the seller must pay for it as well.
Previously, the deal was known as Delivered Duty Unpaid, and the term was changed in the ICC publication of 2010.
Costs Involved in International Trade
International trade deals include several associated costs, such as the cost of obtaining export licenses and related permits, the cost of packaging, the cost of printing product catalogs, etc. The underlying costs may also include dispute settlement.
Even though there are clear guidelines for DAP arrangements, a situation resulting in a dispute may still emerge. For example, sometimes, the carrier of the goods may incur what is known as “demurrage,” which means that they failed to unload the goods on time, owing to a delay in the receipt of proper clearance from either of the parties to the trade agreement.
In such a situation, the fault is attributed to the party that failed to discharge its duty of providing timely authorization and complete documentation to the goods carrier. However, determining this can be complicated given that documentation requirements and definitions may vary from place to place.
It is because they are prescribed by national authorities, which differ from country to country. In many cases, ports within a single country are controlled by different local authorities, which may give rise to several unanticipated inconsistencies.
Some of the basic costs associated with international trade are as follows:
1. Export License Fee
The exporter has to send an application to the controller of imports and exports for an export license. After due examination of the application, the controller issues the license on the payment of a fee.
2. Production and Procurement Cost
The exporter has to either produce or procure the goods ordered by the importer. It includes the cost of obtaining and processing raw materials, the cost of labor and machinery, and other related costs.
3. Packaging
Packaging cost refers to the cost of protecting the consignment through adequate packaging to ensure minimum damage to the goods during transit. In the absence of proper packaging, the goods stand at a greater risk of damage during transit. The concerned parties must bear any losses arising on this account to the contract.
4. Insurance
The goods exported must be protected through insurance so that the concerned parties can recover any loss caused due to damage during transit. The insurance cover is usually taken by whichever party agrees to bear losses caused during transit.
5. Freight Charges
Freight includes transporting the goods from the point of production to the assigned air or seaport for shipping and from the latter to the destination port. There are separate freight charges associated with each of them.
6. Custom Clearance
When the consignment of goods reaches the port of destination, payments need to be made to unload and transport the goods to the buyer’s warehouse. Moreover, several duties and tariffs must be paid to get permission for letting the goods pass a state or national border.
Cost Division under DAP Contracts
The terms of DAP contracts specify which cost is to be borne by which party. If the terminal destination mentioned in the contract is the buyer’s port, the division of cost is as follows:
Related Readings
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In order to help you become a world-class financial analyst and advance your career to your fullest potential, these additional resources will be very helpful:
- Export Trading Company (ETC)
- Freight on Board (FOB)
- Middle Office
- Imports and Exports
- See all commercial lending resources
