When you’re doing global trade and shipping goods internationally, it’s important to choose the right incoterms to use.
Incoterms are international commercial terms that are published by the International Chamber of Commerce (ICC) which define the responsibilities of buyers and sellers for the shipment of goods.
There are 11 different Incoterms, but two of the most commonly used when it comes to international shipping are DAP and DDP.
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What are DAP shipping terms?
DAP stands for “Delivered At Place”.
Under DAP incoterms, the seller is responsible for shipping the goods to the specified location of the buyer. This can apply to any mode of transport, including sea, air, and rail. And the buyer bears the financial responsibility of paying import duty and taxes.
DAP shipping terms indicate that the seller has fulfilled their obligations once the goods have been delivered to the buyer’s chosen destination which means that the buyer also has to arrange for the goods to be collected from the port or airport which can involve additional costs.
What are DDP shipping terms?
DDP stands for “Delivered Duty Paid”.
With the DDP international trade term, the seller takes on all responsibility for the full end-to-end shipping process which includes shipping the goods to the buyer and paying any import or customs duties and taxes.
The buyer does not have to worry about anything with delivery duty paid. Once the goods have been shipped, they will receive their products in good condition and without any additional costs.
Comparison: DDP vs DAP
There are a few key differences between Delivered Duty Paid (DDP) and Delivered at Place (DAP) shipping terms:
Costs
DAP: The Delivered at Place is a cheaper option at the outset as the buyer doesn’t have to pay for any import duties or taxes. However, there may be other expenses involved in collecting the goods from the port or airport that the buyer will have to pay.
DDP: With Delivered Duty Paid, the buyer pays for all the costs including the transportation of goods and import clearance fees. This means that there are no additional costs involved in collecting the goods from the port or airport.
Customs clearance
DAP: In a DAP agreement, the buyer is responsible for the customs broker, which can be a complex and time-consuming process.
If you are not familiar with the process, it’s easy to make mistakes that can be costly.
DDP: The seller is responsible for import clearance and other customs costs which means that they will have to deal with any delays or issues that arise.
This can be helpful for buyers that are not familiar with the customs clearance process.
Delivery location
DAP: In a Delivered at Place agreement, the named destination where the goods are to be delivered is typically a port or airport.
It is the buyer’s responsibility to clear the goods through customs and arrange the transport from the port or airport to their final destination.
DDP: On the other hand, in a DDP agreement, the buyer receives the imported goods at the final destination. This is because the seller is responsible for the final leg which is shipping the sold goods all the way to the buyer’s door.
The seller is responsible for clearing the goods through customs and arranging for transport from the port or airport to the buyer’s address.
Mode of transport
Both DAP and DDP are incoterms rules used for any mode of transport. This means that rail, air and sea delivery methods can be used for both DDP and DAP as long as goods get delivered to the specific location agreed upon by both parties.
Risks and responsibilities
DAP: Under DAP terms, the buyer will have to pay additional costs for customs clearance or delivery. The seller is responsible for getting the goods to the buyer’s country, but the buyer is responsible for import formalities and arranging the transportation from the port or airport.
DDP: The seller bears maximum responsibility in this setup as he is responsible for getting the goods to the buyer’s specified location. The buyer doesn’t have to worry about paying any additional costs, but the seller may have to deal with delays at customs.
Documentation
DAP: The following documents are typically required for DAP incoterms:
- Commercial invoice – This shows the product pricing, quantities, and other important information. See sample here.
- Bill of lading – This is a contract between the shipper and carrier which outlines the terms of transport. See sample here.
- Certificate of origin – This is an international trade document that proves that the products being shipped originate from a certain country.
- Packing list – This outlines the products, packaging, and dimensions of the shipment. See example here.
DDP: In addition to the documents required for DAP, the following documents are also required for DDP shipping:
- Customs invoice – This is used by customs to calculate import duties and local taxes. See sample here.
- Import license – This may be required if the products being imported are subject to quotas or other restrictions
Shipping process
DAP: With DAP shipping, the seller ships the goods to the buyer’s country and hands over all required documentation to the carrier nominated by the buyer.
This means that buyer is responsible for clearing the goods through customs and arranging transport from the port or airport to the buyer’s warehouse.
DDP: The main advantage of DDP shipping terms is getting to understand your true shipping costs from the outset. This is because the buyer pays for all transportation costs, including import duty and taxes.
It can also help to avoid any delays at customs, as all documentation will be in order before the goods arrive. Note, however, that the final unloading will still be the buyer’s responsibility.
Conclusion
So, which Incoterm should you choose when doing international shipping?
The answer to this question depends on your individual shipping needs. DDP and DAP shipping terms have different advantages and disadvantages, so it’s important to understand these before choosing an Incoterm.
DDP shipping is the best option for international buyers who want a stress-free shipping experience and don’t mind paying a little bit extra for the convenience.
All the risks are shouldered by the seller in this kind of agreement, so the buyer can be sure that the goods will get shipped from the importing country and arrive at their doorstep without any issues.
DAP shipping or incoterm is a good choice if you want more control and save money on shipping costs. But, you have to be aware that there are certain risks involved.
The buyer is responsible for taking care of all import formalities so there may be possible delays at customs if you’re not familiar with the process.
Additionally, the buyer may have to deal with the extra paperwork and arrange collection from the port or airport, and pay additional fees for customs.
Ultimately, it comes down to what your priorities are and what you feel comfortable with. As we all know, doing international business can be complex and there are a lot of risks involved.
But, if you’re clear about your objectives and know what you’re getting into, you can minimize the risks and make the best decision for your business.
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