Delivery Duty Paid (DDP) is a type of delivery where the seller takes responsibility for all risks and fees of shipping until the goods reach their destination. Buyers benefit from this system because they assume less risk, liability, and cost. For the seller, DDP has to be handled carefully because it can quickly reduce profits.
The only thing the seller doesn’t do under a DDP arrangement is unload goods at the destination. Once the goods arrive at the buyer’s destination, they take responsibility for the items.
Delivery Duty Paid is a system of shipping according to the International Commercial Terms (Incoterms) that’s used for shipping internationally. It’s an official method developed and recognized by the International Chamber of Commerce, an institution that regulates international shipping.
There are several reasons why companies use DDP, including protecting the buyer and ensuring the safe delivery of goods across countries. There are many rules associated with international trade, and each country has its own laws regarding exports and imports.
DDP removes responsibility from the buyer and places it on the seller. DDP is used to:
Protect the Buyer
DDP protects buyers from being scammed. With DDP, the seller assumes all the risks and costs of shipping. Therefore, it’s in the seller’s best interest to deliver the goods and make sure the buyer receives them.
Ensure the Safe Delivery of Items
Many problems can arise when shipping goods internationally. Every country has different laws regarding transport, import duties, and shipping fees. Because the seller is taking the shipping risks, it forces them to be diligent and only send merchandise on the safest and most efficient routes.
Hold Sellers Responsible for International Fees
If a buyer has to pay the shipping fees in addition to the price of the product, there’s a good chance they won’t make the purchase. Businesses use DDP for the same reason Amazon and other eCommerce businesses offer free shipping: it’s a way to attract customers and increase buyer satisfaction.
Difference Between DDP & DAP
The two most common Incoterms are DDP and DAP. The difference between the two isn’t relevant to domestic shipments, but it’s important to understand the difference for businesses that ship internationally.
Delivery at Place (DAP), previously known as Delivery Duty Unpaid (DDU), places the responsibility on the seller for the delivery of goods up until unloading at the destination point. Once the shipment has arrived at the place of destination, the buyer must assume the risk and cost for unloading, customs clearance, and secondary transport.
With DAP, the seller pays for the shipment’s journey from the point of origin to the point of destination, and the buyer pays for all customs clearance duties or taxes at the final destination.
In the case of DDP Incoterms, the shipping process is usually more efficient because it is handled by one party. If you agree on DAP Incoterms, the responsibilities for the shipment are divided. While this can make it more financially equitable for both parties, and less of a risk for the seller, it can make it challenging to pass customs quickly if the paperwork is filled out incorrectly or both parties fail to agree on a secondary transport mode.
An advantage of DAP is that both parties assume some risks and costs in the shipment of goods. This makes it a great option for sellers new to the market who don’t feel 100% secure taking full responsibility for the shipment of goods.
Understanding Delivered Duty Paid (DDP)
When using DDP, the buyer and seller should understand their specific responsibilities to ensure the smooth transportation of goods.
DDP makes the shipment process the responsibility of the seller. Therefore, the seller is responsible for transporting the goods from the starting warehouse until they arrive at the final destination. At the shipment’s origin, the seller must organize special documentation and export permits.
The seller’s responsibilities also include all the transportation costs. These costs usually include basic shipping fees, import and export customs duties, insurance, VAT, damage fees, and storage and demurrage.
The seller must also arrange for and pay inspection costs and proof of delivery once the goods arrive at the named place. Once the goods have been unloaded and made available to the buyer, the buyer assumes the risk.
Shipping fees involve the costs of shipping goods through air, sea, or land. The process should be done through a freight forwarder since they can provide the lowest price and the most efficient transportation routes. Asiana USA is one of the most experienced freight forwarders in the industry. Our experienced team can help you find the best shipping solution for your business and provide a free freight quote to help you decide which Incoterms work best for your shipping needs.
Customs import and export duties or taxes are the fees you have to pay at the seller’s country or the shipping destination. Every country has different customs laws, and there can be different fees associated with various products.
Shipping insurance isn’t obligatory under a DDP sales contract, but most sellers prefer to purchase shipping insurance since they are already incurring high costs and risks. Shipping insurance is usually handled by the freight forwarder for the shipping customer. Sellers are also responsible for VAT. VAT can be expensive, sometimes up to 15-20% of the value of goods. For this reason, it’s sometimes possible to divide VAT between buyer and seller if both parties agree.
Under a DDP agreement, the buyer doesn’t have a lot of responsibilities and risks. The only thing they need to do is unload the goods at the terminal in the country of destination. The destination should be agreed on in advance by both parties.
Potential Issues for the Seller
The seller is responsible for the risk of loss or damaged goods during the transportation process. If goods are lost or damaged during delivery, then the seller has to pay damage fees and resend the product to the destination.
Potential Issues for the Buyer
Because the seller is arranging transportation and covering the costs of any tariffs, taxes, and duties incurred at customs, these costs are usually passed down to the buyer as part of the cost of goods. This means there is minimal incentive to keep transportation costs low, which could result in higher overall purchase and shipping costs for the buyer.
If the shipping destination is located in a high-risk area, or customs for the country are particularly complicated, the seller may also add an extra fee to compensate for the risk.
Contact Asiana USA for More Information on DDP
If you are looking for the best international shipping option at Asiana USA, we have the skill and experience to help you thrive in today’s competitive world. Contact us for a free quote, or call us at (855) 500-1808 for more information on our services.