What is Delivered Duty Paid (DDP)?
Delivered duty paid (DDP) is a delivery agreement whereby the seller assumes all of the responsibility, risk, and costs associated with transporting goods until the buyer receives or transfers them at the destination port. This agreement includes paying for shipping costs, export and import duties, insurance, and any other expenses incurred during shipping to an agreed-upon location in the buyer’s country. DDP can be contrasted with DDU (deliver duty unpaid).
Key Takeaways
- Delivered duty paid (DDP) is a delivery agreement whereby the seller assumes all responsibility for transporting the goods until they reach an agreed-upon destination.
- It is an Incoterm, or a standardized contract for international shipments.
- Under DDP, the seller must arrange for all transportation and associated costs, including export clearance and customs documentation required to reach the destination port.
- The risks to the seller are broad and include VAT charges, bribery, and storage costs if unexpected delays occur.
- A DDP benefits a buyer as the seller assumes most of the liability and costs for shipping.
Understanding Delivered Duty Paid (DDP)
Delivered duty paid (DDP) is a shipping agreement that places the maximum responsibility on the seller. In addition to shipping costs, the seller is obligated to arrange for import clearance, tax payment, and import duty. The risk transfers to the buyer once the goods are made available to the buyer at the port of destination. The buyer and seller must agree on all payment details and state the name of the place of destination before finalizing the transaction.
Seller’s Responsibilities
The seller arranges for transportation through a carrier of any kind and is responsible for the cost of that carrier as well as acquiring customs clearance in the buyer’s country, including obtaining the appropriate approvals from the authorities in that country. Also, the seller may need to acquire a license for importation. However, the seller is not responsible for unloading the goods.
The seller’s responsibilities include providing the goods, drawing up a sales contract and related documents, export packaging, arranging for export clearance, satisfying all import, export, and customs requirements, and paying for all transportation costs, including final delivery to an agreed-upon destination.
The seller must arrange for proof of delivery and pay the cost of all inspections and must alert the buyer once the goods are delivered to the agreed-upon location. In a DDP transaction, if the goods are damaged or lost in transit, the seller is liable for the costs.
Managing Customs
It is not always possible for the shipper to clear the goods through customs in foreign countries. Customs requirements for DDP shipments vary by country. In some countries, import clearance is complicated and lengthy, so it is preferable if the buyer, who has intimate knowledge of the process, manages this process.
If a DDP shipment does not clear customs, customs may ignore the fact that the shipment is DDP and delay the shipment. Depending on the customs’ decision, this may result in the seller using different, more costly delivery methods.
Special Considerations
DDP is used when the cost of supply is relatively stable and easy to predict. The seller is subject to the most risk, so DDP is normally used by advanced suppliers; however, some experts believe that there are reasons U.S. exporters and importers should not use DDP.
U.S exporters, for example, may be subject to value-added tax (VAT) at a rate of up to 20%. Moreover, the buyer is eligible to receive a VAT refund. Exporters are also subject to unexpected storage and demurrage costs that might occur due to delays by customs, agencies, or carriers. Bribery is a risk that could bring severe consequences both with the U.S government and a foreign country.
For U.S. importers, because the seller and its forwarder are controlling the transportation, the importer has limited supply chain information. Also, a seller may pad their prices to cover the cost of liability for the DDP shipment or markup freight bills.
If DDP is handled poorly, inbound shipments are likely to be examined by customs, which causes delays. Late shipments may also occur because a seller may use cheaper, less reliable transportation services to reduce their costs.
What Does DDP Mean for an Exporter?
DDP indicates that the seller (exporter) assumes all the risk and transportation costs. The seller must also clear the goods for export at the shipping port and import at the destination. Moreover, the seller must pay export and import duties for goods shipped under DDP.
What Is the Difference Between DDP and DDU?
In the world of shipping, delivered duty unpaid (DDU) simply means that it’s the customer’s responsibility to pay for any of the destination country’s customs charges, duties, or taxes. These must all be paid to customs in order for the shipment to be released after it arrives.
On the other hand, delivered duty paid (DDP) means it’s the shipper’s responsibility to pay any of the customs charges, duties, and/or taxes required to send the product to the destination country.
Understanding Various Incoterms
International commercial terms, known as Incoterms for short, clarify the rules and terms buyers and sellers use in international and domestic trade contracts. Some common Incoterms include:
- Ex Works (EXW)
- Free Carrier (FCA)
- Carriage Paid To (CPT)
- Delivered at Place (DAP)
- Delivered Duty Paid (DDP)
- Deliver Duty Unpaid (DDU)
By mastering Incoterms, businesses can optimize international shipping logistics and minimize unexpected costs.
Related Terms: Ex Works (EXW), Free Carrier (FCA), Carriage Paid To (CPT), Delivered at Place (DAP).
References
- Intercoms Explained. “Delivery Duty Paid”.
- United Parcel Service of America. “Delivered Duty Paid (DDP)”.
- Export Council of Australia. “DDP - Delivered Duty Paid - Incoterms® 2020 Rule”.
- Bergami, Roberto. International Delivery Risks: The Case of Delivered Duty Paid in Australia, Acta Universitatis Bohemiae Meridionalis, Vol. 19, 2016, pp. 1-8.
- United States Trade Representative. “2021 National Trade Estimate Report on Foreign Trade Barriers”, Pages 7, 26, 366, 433, and 511.
- International Trade Administration. “Know Your Incoterms”.
