Delivered Duty Paid (DDP): What Does It Mean? |  Guide
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In today’s global economy, it is not uncommon to have goods shipped from one country to another. International shipping has many complex rules and can be pretty difficult to understand. There are companies that exist solely to manage and handle international shipments, including getting items through customs clearance, paying import taxes, and addressing other issues that arise with these shipments. Delivered Duty Paid (DDP) shipping is one common form of shipping used when buyers and sellers conduct business from two countries. So, what is DDP shipping, and how does it work? Keep reading as we tell you everything you need to know before placing your next order for goods from an international seller.
What Is DDP (Delivered Duty Paid) Shipping?
DDP is an incoterm used in the international shipping business. Incoterms, or International Commercial Terms, were developed by the International Chamber of Commerce (ICC). These shipping terms are a set of 11 pre-defined and internationally recognized rules that govern the responsibilities of buyers and sellers in international trade. DDP shipping is a shipping arrangement in which nearly all the risk and responsibility falls to the seller.
When dealing with DDP shipments, the seller must deliver the goods to an agreed-upon location for the buyer. This is typically a port of entry in another country. As part of the arrangement, the seller must pay for all shipping costs, import duties, taxes, and any other expenses incurred in delivering the item to the named place. The final destination must be named in the agreement, and the mode of transport is most likely by ship since these are generally international shipments.
Other Incoterms: DDU VS. DAP VS. DDP
In addition to DDP (delivery duty paid), there are also a few other incoterms that you should be familiar with. The most common are DDU (Delivered Duty Unpaid) and DAP (Delivered At Place). Each of these terms places different liabilities on the buyer and seller. Each also has advantages and disadvantages. Here is an overview of each of these shipping methods.
Under DDP incoterms, nearly all the liability falls to the seller. The seller is responsible for delivering the goods to the final destination, and they are responsible for all charges and shipping costs until the goods are delivered to the place of destination. This means that if there are problems with import clearance, supply chains, or other issues, then the seller might suffer a loss. They could even be forced to pay bribes or other fees necessary to get through customs formalities and get the goods to their destination.
DDU, or delivery duty unpaid, is similar to DDP with a couple of key differences. Under DDU Incoterms, the seller is still responsible for delivering the goods to their final destination. This might even include freight forwarding in some cases. However, once the goods arrive, the buyer is responsible for paying import duties and additional transportation costs. Once the goods arrive at the specific destination, then the seller’s liability ceases, and the buyer assumes the liability from there.
Finally, DAP replaced the DDU term in 2010. You might still hear some experienced shippers using the term DDU, although DAP is now the official term to be used for those transactions. Under a DAP agreement, the seller is responsible for all packaging, loading, and shipping of the items. DAP agreements specify a particular place for the goods to be delivered. For instance, the agreement may state DAP, Port of Miami. Once the goods arrive at the destination port, the buyer takes over responsibility. The buyer is responsible for paying all customs duties and getting customs clearance in the destination country. The buyer is also responsible for paying any shipping charges necessary to get the goods from the port to their final destination.
Seller’s Responsibilities When Using DDP Shipping
Now that you are familiar with many of the trade terms used in international shipping, we will focus more on the seller’s responsibilities when using DDP shipping. As we already mentioned, this form of shipping places the highest level of liability and cost with the seller. The seller pays for almost everything in the transaction.
The seller will be responsible for providing the goods and packaging them for shipment. They also have the responsibility for arranging a carrier for the goods. If any export duties or special licenses are required, then the seller must secure all the necessary licenses for shipping the items. Typically, the seller will also draft the sales contract, and the seller is responsible for all shipping costs. This even includes the final shipping method necessary to deliver the goods to the place of delivery agreed upon in the contract.
In addition to shipping costs, the seller is also responsible for clearing customs and paying all necessary value-added tax or customs duties. If problems are encountered during customs, then the seller must do whatever is necessary to correct those problems. Sometimes the seller may not be familiar with the customs process in a particular country, and this can delay the shipment. Though the seller might look for the cheapest way to ship large packages, they might select the method that has the best chance of making it through customs without issues. Since the seller has the maximum obligation under this form of shipping, you can expect the product pricing to be a little higher.
Buyer’s Responsibilities In DDP Shipping
The buyer in a DDP shipping agreement has very few responsibilities. Once the goods arrive at the place of delivery, the buyer is responsible for unloading the goods. The buyer is also responsible for any transportation costs associated with moving the goods from the place of delivery. In most cases, the goods will need to be transported to a warehouse or other location beyond the port of entry. The buyer must pay for these transportation costs.
In some cases, the buyer may also assist with customs clearance. Since the buyer is usually more familiar with customs practices in their own country, they may assist the seller in getting the items through customs. Otherwise, the goods might be delayed, or the seller may use other shipping options. Another shipping term that you might hear is Free-On-Board (FOB). This term is used to describe when the risk shifts from the seller to the buyer. In DDP shipping, it would be similar to shipping an item FOB, place of destination. This means that the liability would not shift from the seller to the buyer until the goods were delivered to the agreed-upon location.
The Bottom Line
In today’s world of eCommerce, it is not uncommon for goods to be shipped all over the world. To provide some standardization, the International Chamber of Commerce developed a set of rules used to describe these international transactions. One of these terms is Delivered Duty Paid shipping. This means that the seller is responsible for paying all shipping costs, import taxes, and customs duties associated with delivering the goods to the place specified in the contract. Once the goods are delivered, the buyer then has responsibility for unloading the goods and transporting them to their ultimate destination.
Frequently Asked Questions
Who pays freight on DDP terms?
The seller pays freight on DDP terms. In fact, the seller has the maximum risk and obligations under these terms. They must pay all shipping charges as well as taxes and import duties on the goods. The seller is typically responsible for more than traditional CFR (Cost & Freight) shipping or even CIF (Cost, Insurance, & Freight). While the seller likely should purchase insurance to cover the shipment, they also bear the responsibility to get the items through customs in the destination country.
How long does DDP shipping take?
There are many factors that will affect how long DDP shipping takes. Since these goods are usually traveling by ship and going a long distance, it can take a few weeks. In addition, the customs process can add delays to the shipment. On average, you can expect DDP shipping to take 2-3 weeks. However, if there are problems encountered with customs clearance, then it might take more than a month before your items are ready for pickup.
Why do ships use DDP?
Not all ships use DDP shipping. There is also cargo on ships that are being sent using other methods. DDP shipping describes the terms that are agreed to by the buyer and seller. Cargo may be sent on a ship using DAP, DDU, FOB, EXW, FCA, or some other shipping arrangement. Just because goods are on a ship does not mean that they have been sent using DDP shipping.
Does DDP include insurance?
Yes, DDP shipping includes insurance. The seller must bear the cost of the insurance, as well as the shipping cost, taxes, and import duties. If there is a loss of the goods before they arrive at the specified destination, then the seller will be responsible for replacing those goods or indemnifying the buyer.