DDP Incoterms: The Complete Guide

ddp-incoterms
ddp-incoterms

Are you a newbie in the shipping industry or a specialist?

Is your experience in this sector sufficient enough?

Well, whatever the case you must have somehow bumped onto the word “Incoterms.”

If not, “Incoterms” simply means the International Commercial term.

This is a standard universally recognized term specifically used in international trade contracts between the seller and the buyer of goods.

These terms have always been published and updated by the International Chamber for Commerce since the year 1936.

ICC

ICC

Over the past, a lot of reviews have been made to the terms beginning 2000 and later changes were amended in January 2011.

Consequently, this update was referred to as version 2010.

That aside, in this guide, I will take you through one of the Incoterms that is DDP.

We shall focus on the following interrelated concepts:

What is DDP?

DDP is called Delivered Duty Paid.

DDP is one of the Incoterms included in the original 13 trade terms of the general principles of version 2000.

Notably, it still features in the version 2010.

What are the Obligations of sellers in DDP?

§  A1 Provision of Goods in Fulfilment of the Contract
§  A2 Licenses and Formalities
§  A3 Contract Of Carriage and Insurance Contract
§  A4 –Delivery
§  A5- Risk Transfer
§  A6-Cost Divison
§  A7-Notification of Buyer
§  A8-Proof of Delivery and Transport of Documents
§  A9 Check, Package and Mark
§  A10 Other Obligations

What’s the Obligations of the Buyer in DDP?

Let’s now quickly have a detailed information of the obligations.
§  B1 Payment of Price

§  B2 Licenses and Other Procedures

§  B3 Contract of Carriage and Insurance Contract

§  B4 Receiving Goods

§  B5 Transfer of Risk

§  B6 Division of Costs

§  B7 Informs the Seller

§ B8 Proof of delivery, transport documentation or corresponding electronic communication.

§  B9 Goods Inspection

§  B10 Other Obligations

What’s the Incoterms 2010?

Delivered Duty Paid (DDP)
Ex-works (EXW)
Free Carrier (FCA)
Free on Board (FOB)
Cost And Freight (CNF)
Cost, Insurance, and Freight (CIF)
Delivered at Terminal (DAT)

 

Ensure you read meticulously until the end. Let’s kick off.

What is DDP?

As I have mentioned above, DDP is one of the Incoterms included in the original 13 trade terms of the general principles of version 2000.

Notably, it still features in the version 2010.

Unlike the others, Delivered Duty Paid, shoulders the maximum risks, liability and expenses on to the seller.

DDP

DDP – Image courtesy: Trade Global Finance

So what kind of responsibilities are these?

The seller would solely take up the task of shipping the consignment from the warehouse at the location of departure to the agreed destination point in the country of import.

This is done in accordance with the stipulations of the contract.

Actually, the goods are delivered to the consignee after the completion of all the procedures.

The seller or the shipper has to put up with all the risks and expenses associated with transportation of the goods to the required endpoint.

Some of the expenses the seller bears are:

  • Payment for the cost of shipment
  • Import duties
  • Export duties
  • Insurance levies
  • Tariffs, taxes and any other expenses incurred during shipment to the agreed destination in the buyer’s country.

It’s worth noting that under the Ex Works (EXW) term, the seller assumes the least liability while the seller assumes the maximum liability when it comes to the DDP term.

EXW

EXW – Photo courtesy: International Commercial Terms

In addition, DDP never applies in circumstances where the seller is incapable whatsoever of acquiring an import license.

In cases when both the parties are in agreement for the buyer to accept some of the following responsibilities, then the meaning and the term shifts.

Such obligations may be payment of all:

  • Customs
  • Duties
  • Taxes

In the above instances, the DDU terminology is applicable, i.e. Delivered Duty Unpaid.

However, if the parties wish to relieve the sellers of some duties specifically some of the charges payable due to importation such as the Value Added Tax, a clear pact should be reached.

Subsequently, the DDP becomes, “Delivered Duty Paid, VAT unpaid.

With that in mind, let us shift our attention to the obligations of the sellers in DDP.

So What are the Obligations of Sellers under DDP?

Before we get to that, remember that the Incoterms specify the role of each party during the transactions.

In the signed contract some of the binding issues are:

  • Responsibilities of the buyer and seller.
  • Party who acquires the insurance, licenses and all the paperwork.
  • Who plans for the transport to a specific point
  • The circumstances under which the costs and some risks shift between the seller and buyer.

Having known that, let’s now pick up on the obligations.

The DDP expression may be used regardless of the mode of transport used by the seller or consignor.

Although, DES – Delivered Ex Ship or DEQ – Delivered Ex Quay are used in cases when the cargo are supplied on board or at the terminus.

DES

DES – Photo courtesy: ACEX

For clarity, we shall denote the following parties:

  • Seller’s obligations denoted by A
  • Buyer’s obligations represented by B.

These obligations are sequential and can be summarized in a simple diagram shown below.

Take a look.

§  A1 Provision of Goods in Fulfilment of the Contract

The consignor has to first arrange forthe goods together with the commercial invoices with regard to the sales contract.

The commercial invoices, as well as other documents as stipulated in the contract or needed for proof,may also be transmitted electronically.

§  A2 Licenses and Formalities

The seller needs to acquire and have all the licenses together with all documentation at his own disposal i.e. export and import licenses.

In addition, he needs to discharge all duties related to the customs formalities for the exportation or importation of goods.

If need be, even crossover via another country.

§  A3 Contract Of Carriage and Insurance Contract

It is divided into two components

a) Contract of Carriage

The seller has to commit to contract a suitable carrier for the transportation of goods to the agreed point of destination as required by the consignee.

Evergreen shipping

Evergreen shipping

One may ask what if both the parties fail to have a consensus on the suitable designated point?

Well, in that case, the seller is free to pick a suitable point within the named locality that best suits him.

b) Contract of Insurance

This not an obligation for the seller.

§  A4 –Delivery

The seller must thus promptlysupply the goods to the buyer in relation to the provisions of A3 within the agreed timelines.

Remember, the seller still shoulders all the risks of delivery.

§  A5- Risk Transfer

The seller shall bear all the risks associated with the shipment, whether losing or damage of goods.

This is pertaining to the provisions of B5.

The seller is only relieved of this duty once the goods are distributed and delivered to the buyer as per the requirements of A4.

§  A6-Cost Divison

The cost allocation is done in accordance with the stipulations of B6.

The seller takes care of all the levies from A3.

This includespayment of all expenses till the delivery of goods to the consignee as stated in A4.

On top of that, the seller pays for the customs formalities for the exportation or importation of goods unless stated otherwise or differently agreed by both the parties.

He also settles fees relating to intercountry crossover if any.

§  A7-Notification of Buyer

The seller has to sufficiently and accurately notify the buyer of the dispatch of the consignment and anyother supplementary information.

This process is vital since it enables the buyer to adequately prepare in advance to receive the shipment.

§  A8-Proof of Delivery and Transport of Documents

The consignor has to now furnish the buyer at its own expenses with a bill of lading together with usual shipping documents.

Bill of lading sample

Bill of lading sample

Or, any other documents that might be needed to acquire the goods with respect to the stipulations of A4 or B4. Some of them are:

  • Negotiable bills of lading
  • Non-negotiable sea waybills
  • River transport documents
  • Air waybills
  • Rail waybills and road orders
  • Multimodal transport documents

If both the parties opt for electronic transmissions, then all the above documents may be substituted with respective electronic data interchange (EDI) message.

Note that the EDI’s are suitable enough for use.

§  A9 Check, Package and Mark

The seller has to cater to all the costs involved in checking the goods.

At this point, this is done to guarantee the quality of the products and their respective weights. Remember this must be done according to the terms of A4.

In addition, the seller must also provide the necessary packaging of the goods for delivery again at his own expenditure.

An exception is only applicable in cases where the goods involved in the contract are to be supplied without packaging due to relevant industrial practices.

§  A10 Other Obligations

Eventually, the seller must, therefore, cover the costs encountered in obtaining the documentation as termed in B10.

Or corresponding EDI messages except for provisions of A8.

The buyer should, therefore, be reimbursed if he made an input to assist in the acquisition of the documents.

Optionally, the seller needs to provide the buyer with detailed information about the insurance cover bought.

That is all for the seller’s obligations.

Shall we proceed to the buyer’s responsibilities now?

Obligations of the Buyer in DDP

Just like the seller, the buyer also carries a junk of responsibilities. Study the diagram below to have an idea before we proceed.

Let’s now quickly have a detailed information of the obligations.

§  B1 Payment of Price

The buyer ought to pay for the full amount of money for the goods as outlined in the sales contract.

§  B2 Licenses and Other Procedures

The buyer must assist the consignor with the process of obtaining both the import and export licenses at the request of the consignor and bearing all the risks and expenses.

Any other formal licenses might also be sorted for the importation of goods.

§  B3 Contract of Carriage and Insurance Contract

a) Shipping contract

This is not a commitment for the buyer.

b) Insurance contract

No commitment to the buyer.

§  B4 Receiving Goods

The buyer is obliged to collect the cargo once the seller conveys the goods with regards to term A4.

§  B5 Transfer of Risk

The buyer has to assume all the risks of loss of or destruction to the shipment after delivery of the goods according to A4.

In a situation whereby the buyer does not fulfill the obligations set out in B2, he is solely responsible for all the extra risks of loss or damage to the goods.

Should the buyer fail to give notice to the seller regarding the terms of B7.

He shall thus cover for all the risks of loss or damage to the goods from the fixed agreed date or the expiry of the delivery timeline.

§  B6 Division of Costs

The buyer needs to pay the costs of the goods from the delivery period, according to A4 as long as the goods have been identified to have been the ones stipulated in the contract.

Consequently, the buyer bears all the additional expenses if he ignores or fails to adhere to calls of delivery of the goods.

Or, give notice with respect to B7 when the commodities have been conveyed according to A4.

§  B7 Informs the Seller

The buyer picks on the suitable time within the provided timeline and the specific location at which the goods are to be received at the port of destination.

He/she must promptly notify the seller.

B8 Proof of delivery, transport documentation or corresponding electronic communication.

Offloading at port of Mombasa

Offloading goods at the port

The buyer has an obligation to receive the bill of lading or shipping documents issued in accordance with A8.

§  B9 Goods Inspection

The buyer pays tosave for otherwise agreed, the fees for pre-shipment inspection.

However, when the inspection is carried out by the relevant authorities of the exporting country, then the buyer does not cater to that.

§  B10 Other Obligations

Judging the seller, at his plea, risk,and expense, every assistance must be issued by the buyer in gaining any documents.

Or, equivalent electronic messages disseminated or conveyed in the country of importation.

Which the seller may need for the reasons for placing the goods at the disposal of the buyer as provided by this rule.

Conclusion

Basically, this all you need to know regarding the Delivery Duty Paid incoterm.

I am sure you can now differentiate DDP from other terms.

Moreover, you can now distinguish the obligations of both the seller and the buyer as per the DDP.

Remember, it is important to share your intentions with the supplier, whenever you’re importing from China.

This way, you will definitely get better deals.

You’re now good to go.

For questions, or free consultations, BanSar team is always here for you.

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