When sending goods internationally do you have a tendency of using Delivery Duty Paid (DDP)? You’re not alone if you do, because it really is, or seems like, an easy choice to make when it comes to international business. There are actually many companies that choose international terms of sale based on various factors such as their company philosophy, the costs, the seller options or just how easy the deal may seem to work out. But the truth is, without being aware of the different options available to you, you might end up loosing control of shipments or paying way too much out of your pockets. One solution available is to better understand Incoterms® and selecting strategically wise options for your business.
The Incoterms® rules were developed by the International Chamber of Commerce (ICC) and have become an essential part of the daily language of trade. Within the rules, businesses will find contracts incorporated for the sale of goods worldwide and provide rules and guidance to importers, exporters, lawyers, transporters, insurers and students of international trade. The terms deal exclusively with two important points: the obligation of buyers and sellers (in relation to the responsibilities of shipping and transportation) and the stipulation on which party is held responsible of risk of loss during transit.
In a nutshell, the terms are essentially a set of international rules provided for a better interpretation of the most commonly used trade terms. They’ll help determine who pays the costs of the different transportation segments. The Incoterms® rules will also influence the valuation done by customs of imported merchandise. Consequently, some costs within the supply chain may or may not be included in the value for Customs depending on the term agreed upon.
Larger responsibility on shoulders of seller
Delivery Duty Paid (DDP) puts the larger part of the obligations on the shoulders of the seller and a minimum on the buyer. That makes the seller responsible for delivering the goods and therefore paying duties and taxes related to importing the goods. For buyers, DDP has its advantages: lower risk (the seller ensures responsibilities of transit to destination), at the time of purchase the landed costs are known and there are no administrative headaches related to supply chain management or arranging payments to vendors.
But hold on, there are also some disadvantages for buyers using DDP. For example, if the seller is unable to obtain importing licenses, permits or payments options with Canadian Customs, DDP cannot be used. The buyer will not have control over the transportation of the goods; other than the vendor, the buyer has no other other direct way of tracking the shipment. Should an issue arise, the buyer will not have any possible option to interject and finally, the vendor has the possibility of stuffing hidden fees related to transportation and importation in his markup without the buyer the knowing.
Alternatives do exist
If you’re wondering if there’s an alternative to DDP, there is and it’s caller Free Carrier (FCA). This term paces the maximum of obligations on the buyer and the minimum on the seller. The buyer is now responsible for ensuring delivery of the goods to the expected location and pays for all costs and risks of bringing the good to destination. The seller, having cleared the goods for export, will hand over the goods into the disposal of the first carrier (determined by the buyer), at a determined place. Essentially, the seller makes sure that the goods make it to the determined point of delivery and afterward, the risks are passed on to the first carrier once handed over.
Just like DDP, First Carrier has its advantages and disadvantages for buyers, albeit you’ll realize just how different the two options are after comparison: as a buyer using FCA you’ll have control over the movement of your goods, there is constant tracking of the shipment, if there is an issue – you can jump in to take care of it – and there are no hidden transportation or import fees. What are the disadvantages? The main caveat would be that you’ll probably require and administrative resource in order to liaise with the service provider. But that’s about it.
Paying attention to the terms of sales in any new contractual agreement will allow you strategically consider what’s best for your business. Better understanding the terms allows you to make a wiser decision.
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FAQs
Import and export custom duties
Why is DDP not a good idea for the seller? ›
DDP is an incoterm that stands for “delivered duty paid.” Used in sea freight and air freight importing, when shipping under this Incoterm, the maximum responsibility is placed on the seller. DDP can be risky since sellers are responsible for the delivery, and may lack local destination knowledge and requirements.
What are the risks of Delivered Duty Paid? ›
Delivered duty paid (DDP) is a delivery agreement whereby the seller assumes all of the responsibility, risk, and costs associated with transporting goods until the buyer receives or transfers them at the destination port.
Why should DDP be avoided? ›
It imposes the highest risk of loss on sellers because they have to assume all charges to the point of delivery. This does give the seller control over the shipment, but it also means they are responsible for the goods from the time of purchase until they reach their port of destination and are ready for unloading.
Is DDP the best incoterm? ›
Due to the complex rules associated with international shipping and each country having its own set of rules and laws for customs formalities, DDP is best for high-value items (i.e., an average order value of greater than $30). Incoterms are internationally recognised shipping terms.
What is a criticism of DDP? ›
One common criticism of DDP is the lack of randomized clinical trials to support the efficacy of DDP.
Why would a company prefer to avoid selling providing DDP terms to their customers? ›
DDP shipping challenges for sellers
Costs: DDP shipping can be costlier than other shipping alternatives since the seller bears all the delivery-associated costs, including customs duties, taxes, and fees.
What is the difference between delivery duty paid and FOB? ›
FOB shifts risk to the buyer earlier in the shipping process, while the DDP shipping side keeps more risk with the seller until goods are delivered. Choosing between these terms depends on factors such as logistical capabilities, risk tolerance, and preferences for cost management in international trade transactions.
What is the opposite of delivery duty paid? ›
Delivered Duty Unpaid (DDU) is an international trade term indicating that the seller is responsible for ensuring that goods arrive safely at a destination. The buyer is responsible for import duties. Delivered Duty Paid (DDP) indicates that the seller must cover duties, import clearance, and any taxes.
Does DDP include insurance? ›
DDP shipping includes door-to-door delivery provided by the seller, as well as duties, insurance, and taxes.
DDP differs from Delivery at Place (DAP) as the seller is responsible for the import formalities and transportation of the goods, including unloading the goods. DDP shipping is commonly used for international shipping as the risks are reduced but as a result, the costs are higher.
What is the alternative to DDP? ›
DAP shipping is widely considered cheaper than DDP shipping for the seller because the buyer takes on more financial responsibility until the risk transfers.
Why is DDP so expensive? ›
DDP (Delivered Duty Paid): The customer pays for shipping and any duties, taxes, or customs fees at checkout. Costs may seem higher because they are all upfront. Paying before the shipment gets through customs ensures there are no hold ups or delayed packages.
What is the risk of DDP? ›
Potential Issues DDP
Because risk is transferred to the buyer once the shipment is handed over at the destination terminal, the seller is responsible for the loss of or damage to the shipment. This means the seller is responsible for insuring the shipment, or paying for the loss if anything goes wrong.
Is DDP still a valid incoterm? ›
Delivery Duty Paid (DDP): advantages and disadvantages
This rule was originally published in Incoterms® 1967 and has continued largely unchanged in its intent. The seller must deliver the goods as in DAP, but this time all import clearance formalities are at the cost and risk of the seller.
What are the benefits of DDP? ›
Advantages of DDP
They receive the goods at their specified location without having to navigate complex import procedures. Predictable Costs: Buyers can more accurately predict the total cost of acquiring the goods since DDP includes all transportation costs, import duties, and taxes.
Is DDP shipping worth it? ›
DDP is considered the better customer experience, as it is a cross-border option that takes all fees into consideration upfront, allowing the merchant to still choose whether they pass those fees to the customer by increasing the product pricing or simply eat those costs.
Why is DDP not suitable for imports to Germany? ›
Under DDP, there is an obligation to be declared as the importer. Many imports are declared incorrectly – Buyer as importer. As the owner of the goods on importation, the Seller would have to register for VAT in the buyer's country. For imports into the EU, this could result in multiple VAT registrations!!
Should I take FOB price or DDP? ›
The DDP vs FOB is primarily based on who pays for the delivery and related costs. In DDP shipping, the seller pays these costs; in FOB shipping, the buyer pays these costs.
What is the point of delivery for DDP? ›
DDP stands for “Delivered Duty Paid” which means that the seller delivers the goods when the goods are placed at the disposal of the buyer, cleared for import on the arriving means of transport, and ready for unloading at the named place of delivery.
