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Also see our complete Incoterms Guide 2023
The global economy relies on the swift and efficient delivery of goods from one entity to another.
To ensure that these deliveries are managed effectively, the International Chamber of Commerce (ICC) created a system of rules known as Incoterms, which dictate how payments and responsibilities should be divided between buyers and sellers in international trades.
One of the most important terms in this system is Delivered Duty Paid (DDP). Understanding DDP and how it relates to other Incoterms can help ensure that international shipments are delivered on time and without any legal issues.
In this blog post, we will explain what the DDP Incoterm is, look at an example of how it is used in practice, and discuss the associated benefits and drawbacks.
What is Delivered Duty Paid (DDP)?
Delivered Duty Paid (DDP), also known as Delivery Duty Paid, is an Incoterm used when the seller must deliver goods that have been cleared for importation and delivered to the named place of destination within the buyer's country of import.
DDP incoterms place the maximum responsibility on the seller as they must pay for all costs and risks of delivery, including import duties, taxes, and customs clearance. The seller is also responsible for all shipping costs involved in delivering the goods to their destination.
DDP Price Calculation: Product cost + packaging + loading charges + delivery to port/place + export customs charges + terminal charges + loading on carriage + carriage charges +insurance + destination terminal charges + delivery to destination + import duty, taxes, security clearance + profit share
Obligations Under the DDP Incoterms
- Prepare and submit all export documents to customs
- Packaging and loading of the cargo
- Arrange for and pay for shipments to the buyer's place of destination
- Customs clearance at the port of import
- All duties and taxes
- Inland transport to the agreed-upon location
- Payment of the goods
DDP Point of Risk Transfer
The point of risk transfer for the DDP Incoterm is at the named place of destination. This means that once the seller has delivered the goods to their destination per the specified terms, any risks associated with further delivery are transferred to the buyer.
DDP Incoterms Example
Let's take a look at an example of how DDP works in practice.
An American importer wants to purchase furniture from a manufacturer in China. The importer and the manufacturer agree that the Incoterm of Delivery Duty Paid (DDP) will be used for this transaction.
The Chinese manufacturer is responsible for preparing, packing, and loading all cargo onto the vessel. They must also arrange and pay for shipping from the port of origin to the port of import in the U.S. Once the cargo arrives, they are responsible for all costs associated with clearing customs and paying any duties or taxes. Finally, they will deliver the furniture to the buyer's named place of destination within their country.
The buyer is then responsible for taking delivery of the goods at the named place.
Benefits and Drawbacks of DDP Incoterms
Given that the DDP Incoterm places all costs and risks of delivery on the seller, many exporters find this term intimidating. However, the DDP Incoterm can be beneficial for exporters as it helps maintain full control over the shipment.
On the other hand, there can be a downside for exporters as the cost of shipping and other related expenses can add up quickly. Additionally, DDP places the highest risk on the seller, and if any issues arise during customs clearance or delivery, it is the seller's responsibility to resolve them.
The DDP Incoterm takes all of the burdens off importers as they do not have to worry about dealing with any costs associated with shipping or customs clearance.
The potential downside of the DDP Incoterm for importers is that it can be difficult to estimate the total cost and time needed for delivery since these costs are covered by the seller. By giving up control over the shipping process, the importer also runs the risk of delays or the exporter choosing a shipping route or carrier that is not the most cost-effective.
Are DDP Incoterms the Right Choice for Your Business?
Shipping goods can be a tricky endeavor, especially when it comes to international shipping and the varying customs regulations.
Delivered Duty Paid is a sound choice for sellers and buyers alike, as it ensures a safe and secure shipping experience. It is especially beneficial for buyers who want to avoid the hassle and cost of dealing with importing and for experienced sellers who are comfortable taking on all risks and costs of delivery.
Either way, it's always best practice to consult with a reliable partner who has expertise in this area before embarking on your next shipment process. Doing so can help ensure that you choose the right Incoterm for your particular needs.
Delivered Duty Paid (DDP) Incoterms FAQ
Does DDP shipping include VAT?
Yes, the DDP Incoterm includes all taxes, including Value Added Tax (VAT). Any import tax, including VAT, is the responsibility of the seller.
Is DDP more expensive?
In most cases, DDP is more expensive than other Incoterms because the seller has to cover all of the costs associated with shipping and import duties. However, it can also be the most cost-effective option depending on the circumstances.
What kind of documentation is required for DDP shipments?
The seller will need to provide all applicable documents related to shipping, including a commercial invoice, a packing list, and a bill of lading, as well as any other documents necessary for clearing customs.
Who is the importer of record on a DDP shipment?
The seller, or the foreign shipper of the goods, is the importer of record for any DDP shipment.
What is the difference between DDP and CIF?
CIF (Cost, Insurance, and Freight) is similar to DDP in that the seller pays for the cost of shipping, insurance, and freight. However, the biggest difference is the point of risk transfer and delivery, which is at the port of loading in CIF and the buyer's designated place of destination in DDP.
What is the difference between DDP and DAP?
Delivered at Place (DAP) and DDP are quite similar in that the seller is responsible for arranging and paying for delivery, however, there are some differences. With DAP, the seller only pays for freight costs and is not responsible for any import duties or taxes that may be applicable. The buyer is responsible for handling these charges upon arrival at the destination.