As industries rapidly grow, goods delivery between countries becomes vital for a nation’s development. DDP Incoterms is one of the important delivery terms that you should know. In this article, we will provide detailed information about DDP that you can choose to meet your demand.
What is DDP Incoterms?
You need to have a clear understanding of Incoterms before jumping to DDP Incoterms. Incoterms is a code of conduct that is recognized worldwide for using international and domestic commercial terms. Understanding the delivery terms ensures that you have transactions that are successful and effective.
Incoterms regulate responsibilities, costs, and transfer risks moment between the two parties. You will see that there are many Incoterms versions applied and in this article, we will mention the most recent version, which is Incoterms 2020.
It is divided into 2 groups. For the first group of terms, you can use them for all types of transportation including EXW, FCA, CPT, CIP, DAP, DPU, and DDP. For the second group of terms, you can only use them for marine transportation and inland waterways including FAS, FOB, CFR, and CIF.
So, what is the DDP Incoterms that we mentioned above? DDP stands for Delivery Duty Paid which means that delivery with duty paid to the place of delivery. To speak it more simply, under this term, the seller is forced to bear all the determined rights of the buyer and pay all shipping costs as well as take all responsibilities until the buyer receives the goods.
In addition, the most important thing when using DDP Incoterms is that the seller has to pay taxes such as import tax and has to do the customs clearance at both import and export procedures. For that reason, the seller and the buyer need to clarify the conditions, especially the place of delivery in the foreign countries, costs related to delivery, and risks to ensure their rights.
The Responsibilities and Obligations of Sellers and Buyers
Before using DDP Incoterms, you need to have a clear understanding of the responsibilities and obligations of 2 parties delivering the goods. This is a very crucial thing because it makes sure both the seller and the buyer know about their responsibilities and obligations in the contract to avoid any unnecessary disputes.
- In case you are the seller, you have to take these responsibilities:
You must prepare the goods for delivery, the appropriate commercial invoices, and other evidence that is already listed in the contract for the buyer. Any of your documents can be traditional paper documents or digital documents if the 2 parties agree.
You must deliver the goods by placing them on the arriving means of transportation at the disposal of the buyer and ready for unloading the goods at the place of delivery. You must ship the goods on the date or time agreed with the buyer.
You must bear the contract execution fee, and arrange the goods delivery to the named place of destination or agreed place of delivery. If there is no specific place or undetermined, you can choose the most suitable place of destination that suits your purposes.
According to DDP Incoterm 2020, you can use your own means of transportation without necessarily having to hire a third party to transport. Your business will be very beneficial if you already have the means of transportation.
You must deliver the goods to the chosen place of delivery in the sales contract and provide the relevant documents for goods shipment at the same time so that the buyer can receive the goods at the chosen place of delivery. If the goods do not fit with the transport documents, the buyer can have the right to file a complaint against you.
You must take responsibility for unloading goods from the domestic means of transportation and hire another means of transportation such as a vessel or airplane. Then, load the goods on the international means of transportation at the designated port, carry out the import clearance, and pay import tax.
You must pack and mark the HS code for the appropriate goods with means of transportation unless 2 parties have agreed on a specific way of packing and marking the HS code when consigning the contract.
In terms of costs, you must bear all the costs relating to the goods and deliver until the goods are transferred to the buyer at the place of destination.
You must pay the cost for unloading at the place of destination because it is also included in the transport contract, the cost of providing delivery documents to prove that the goods are transferred, many types of taxes, fees, and any costs applied relating to export clearance, transit, and import clearance if any.
You must pay the costs of necessary inspecting such as quality inspection, weighing, measuring, and counting for shipment.
You must pack the goods and bear that cost unless the custom of the trade specifically requires that the goods be shipped unpacked.
Besides, you must pay all kinds of costs and expenses relating to support you in obtaining the necessary documents and information.
In terms of risks, you must take responsibility for risks whenever complete the delivery of goods.
- In case you are the buyer, you have to take these responsibilities:
You must pay for the goods as stated in the consigned contract after receiving goods from the seller at the place you have determined. You can provide any documents in traditional paper form or digital form if the 2 parties agree.
You must take responsibility for receiving the goods when they have been delivered, transported, and unloaded from means of transportation at the place of delivery to your warehouse.
If you do not notify the seller timely, you will bear all the risks of loss or damage to the goods from the specified date or the last day of the specified time for shipping.
In terms of costs, you must pay for the unloading of goods from the means of transportation at the place of delivery and transporting the goods to your warehouse if it is mentioned in your contract.
If necessary, because the buyer has to bear all the risks and costs, you have to assist them whenever they are required to take the relevant documents relating to the customs clearance such as:
- The permission to export, transit, import
- The security inspection of the goods when export, transit, import
- The inspection before delivering goods, and
- Any other official documents.
Refund any costs for the seller if you can not perform your responsibilities or fail to give notice to the seller with the provided goods have been identified as the contract goods.
In case you have the right to decide the time or place of delivery, you must fully announce to the buyers about that.
Benefits and Drawbacks of DDP Incoterms
You can see that DDP Incoterms is a good way to strengthen the relationship between the seller and the buyer. The buyer can rest assured in the delivery process because most of the responsibilities belong to the seller.
- The main benefits that DDP Incoterms can bring about such as:
DDP Incoterms provides the buyer with a high peace of mind because they do not have to worry about the costs that can add in and the complex customs procedures.
The buyer can face a lot of difficulties with international customs fees. So, the seller having a thorough knowledge of the goods and routes, and actively paying international customs fees can help a lot for the buyer.
Through DDP Incoterms, the buyer can simplify their process as they just need to arrange for the unloading and receive the goods without worrying about any problem that could occur during the delivery process.
The buyer will reduce the level of risk because the seller has taken all the responsibility. Every country has its own regulations about taxes and shipping fees. Passing it to the seller so that they ship in a good route will ensure the quality of goods and avoid loss.
DDP Incoterms ensure fiscal transparency. The buyer will not have to pay any unexpected fee during the delivery process.
- Besides, DDP Incoterm can also bring some drawbacks such as:
The seller will have to bear quite a lot of burden when using DDP Incoterms because they have to take full risks and costs relating to the shipment and many complex customs procedures issues.
The seller has to take maximum responsibility so that the buyer will have to pay more for an appropriate process and not take risks as they want. The price to buy might be higher because the seller increases the costs to account for all the responsibilities they have to take.
Instructions on How to Use DDP Incoterms
In terms of transportation, you can use this term for all modes of transportation, and can be used when there is a participation of many means of transportation.
Goods are put under the control of the buyer on the means of transportation and are ready for loading at the place of delivery. The seller takes full responsibility for the risks involved in bringing the goods to the place of delivery.
Both parties should have to clarify the delivery place. There are several reasons for that:
Firstly, the risk of loss or damage to the goods is transferred to the buyer at the place of delivery. Therefore, having a clear regular about the place of delivery is important.
Secondly, the seller has to bear all costs to bring the goods to the place of delivery including the import clearance fee. This is also the cost transfer point from the seller to the buyer.
Finally, this place is where the seller has to sign a transportation contract to deliver the goods. In the case that problems occur before the delivery point, the seller has to take responsibility for all losses including any additional costs incurred by the carrier during the delivery process.
Moreover, the seller should notice:
When using DDP Incoterms in commercial transactions, the exporter has the highest responsibility.
The seller not only takes responsibility for delivering the goods to the place of delivery but also carries out the customs procedures and pays for import tax, VAT, and other kinds of necessary taxes to import unless there are other agreements between two parties in order to complete all the customs procedures at the imported country.
In case the seller has difficulties in organizing the import customs, the buyer is more capable, and easier to do these procedures. The seller may consider using the DAP or DPU Incoterms in which the seller remains to take the responsibility to deliver the goods at the place of delivery but is not required to carry out the import procedures.
When to Use DDP Incoterms?
When considering and using DDP Incoterms in commercial contracts, there are many factors that you can consider to ensure reasonability and save your budget as the buyer such as:
DDP Incoterms requires the seller to take all the transportation costs including import tax and many relevant fees until you receive the goods. For that reason, you can choose DDP Incoterms if you can control and predict many types of costs that may occur.
This may happen when you have your supply chain operate stable with less variation in costs as well as routes.
If you already received a quote from one freight forwarder company, you should consider quotes and services of many other companies to make sure that you can have an affordable price. For instance, if you want to receive a quote from Bansar, you just need to contact us and we will help you. This comparison helps you make the right decision.
Before deciding to use DDP Incoterms, you should consider the level of succession of the seller when delivering goods to your country.
This proves that they already had experience in processing complex procedures relating to customs and taxes, increasing the level of assurance. Successful when delivering goods to the seller helps you minimize many problems of damaging goods or delays.
To make sure your decision is precise, you should have a deep understanding and trust in the freight forwarding company that your seller cooperates with. This research includes your evaluation of their professionalism and reputation in delivering goods, and their ability to solve problems that can occur in the delivery process.
Cargo insurance in DDP Incoterms
Under DDP Incoterms, there is no requirement for insurance for both parties. However, to avoid risks, it is recommended that the party that has a longer risk distance buy insurance for goods.
In this case, the seller’s risk distance is from their warehouse to the place of delivery in the buyer’s country. This distance lasts long and poses a high risk for the seller in the delivery process. Therefore, the seller is encouraged to insure shipment to protect their benefits. Such insurance is voluntary but not compulsory so it is not an obligation of the seller to the buyer.
At the same time, the buyer has no obligation to the seller to conclude an insurance contract. However, the buyer has to provide any necessary information for the seller to purchase the insurance.
The Difference between DDP and other Incoterms
Incoterms have a lot of different types that are suitable for different situations. Let’s have a look to see what is the difference between DDP Incoterms and the other types of Incoterms.
- EXW Incoterms
EXW Incoterms stands for Ex Works which means deliver at workshop. If the seller wants to export goods but is not capable of doing anything relating to goods such as customs clearance, transportation, insurance cargo,… because of the lack of export experience. Using EXW is a suitable choice.
The seller only needs to place the goods in their manufacturing workshop, the buyer will pay the invoice and send someone to pick up the goods.
If the responsibility of the seller is highest in DDP Incoterms, then for EXW Incoterms, the seller’s responsibility is lowest.
In contrast to DDP Incoterms which is the seller clears both import and export customs, under EXW Incoterms, the buyer will take responsibility for that thing.
- FCA Incoterms:
FCA stands for Free Carrier suitable for the seller who is capable of clearing export customs procedures and bearing costs such as export tax. Under FCA Incoterms, the seller usually estimates the amount of the export tax in advance and includes it in the buyer’s goods price.
- FAS Incoterms:
You can only use FAS Incoterms for marine means of transportation. Similar to FCA Incoterms but if the seller has the additional ability to bring the goods to the wharf at the exported port, you can choose Free Alongside Ship (FAS) Incoterms.
Through FAS Incoterms, the risk of loss or damage to the goods will be transferred when goods are placed alongside the ship, and the buyer will bear all the costs from there.
- FOB Incoterms:
Similar to FCA Incoterms, you can choose Free On Board (FOB) Incoterms if the seller has the additional ability to bring the goods on board the ship at the exported port. Through FOB Incoterms, the risk of loss or damage to the goods will be transferred when goods are placed on board the ship. This Incoterms is applied only for marine means of transportation.
The responsibility of the seller will increase from FCA to FAS and finally to FOB. In these Incoterms, unlike DDP Incoterms which the seller is obliged to cover everything, the seller only has the domestic responsibility and has no responsibility for international delivery.
- CFR Incoterms:
Cost And Freight (CFR) Incoterms is signed when the seller can hire ships. With CFR Incoterms, the seller is not responsible for purchasing insurance for the goods. Therefore, the buyer must purchase insurance themselves. In CFR Incoterms, you can only use it for marine means of transportation.
- CIF Incoterms:
Cost, Insurance, And Freight (CIF) Incoterms are signed when the seller has the seller has the additional ability to purchase insurance for the goods when delivered. In CIF Incoterms, you can only use marine means of transportation.
- CPT Incoterms:
Carriage Paid To (CPT) Incoterms is signed if the buyer wants to receive the goods as FCA Incoterms but is not capable of transporting the goods. The seller usually estimates the amount of the transport fees in advance and includes it in the buyer’s goods price.
- CIP Incoterms:
Carriage, Insurance Paid To (CIP) Incoterms is signed if the buyer wants to receive the goods as CPT Incoterms but they also need the seller to purchase insurance for the goods. The seller purchases insurance and bears insurance costs but the buyer is the one who takes the risks of loss and damage to the goods during the delivery process.
In C-Incoterms, besides the domestic responsibility of the goods, the seller has to take the responsibility of international delivery and insurance for the goods.
- DAP Incoterms:
Delivered At Place (DAP) Incoterms is signed if the buyer does not have the ability of experience of delivering the goods to their imported inland and the seller can do this thing.
- DPU Incoterms:
Delivered At Place Unloaded (DPU) Incoterms is signed if the buyer does not have the ability or experience of delivering the goods to their imported inland as well as is not capable of unloading the goods from the arrived means of transportation, the seller can do this thing.
In D-Incoterms, in addition to being responsible for domestic costs for shipments and international freight, the seller also has to bear additional costs in the importing country. DAP and DPU Incoterms are quite similar to DDP Incoterms but in DDP Incoterms, the seller’s responsibility is the highest.
Conclusion
To wrap it up, I hope this article provides enough detailed information to help you understand more about DDP Incoterms. So in case you have any concerns or questions about importing and exporting goods, you can contact Bansar, and we will help you with the most thorough sincere advice.
FAQs
1. When should a buyer use DDP Incoterms?
DDP Incoterms can be applied to all modes of transportation including multimodal transport. When the buyer is faced with a decision on terms of delivery, using DDP Incoterms is a good choice when the seller has an excellent performance on import clearance for the goods.
2. What is the price and how to calculate it in DDP Incoterms?
The price of DDP represents all the costs that the two parties agreed on in the commercial contract, and each party is responsible for paying the costs corresponding to these terms:
- The seller is responsible for paying costs relating to import and export procedures, the cost of handling documents to the buyer, the cost of hiring a delivery company as well as costs of inspecting the goods,.. until goods are transferred at the place of delivery as agreed in the contract.
- The buyer is responsible for paying costs relating to the value of goods, relevant shipment costs after receiving goods, and costs of unloading if the contract does not show that the seller paid) from time of receiving the goods at the place of delivery in the contract.
3. What should I choose between DDP and DPU Incoterms?
It will not have a specific answer because every transaction has its own characteristics. Your choice between DDP Incoterms and DPU Incoterms depends on several factors such as the delivery of goods, the customs clearance in each country, and the different requirements of insurance.
If you want to rest assured about the delivery process and confident in your financial capital, DDP Incoterms is a great choice. You just need to complete the payment and prepare to receive the goods.
When using DPU Incoterms, it will help to reduce some of the burdens of the seller which means that you can take more risks in the goods delivery process. If you want to take more responsibility for your goods and can accept doing the customs clearance yourself, you can prioritize choosing DPU Incoterms.
