In international commercial transactions, the terms Delivery Duty Paid (DDP) and Delivery Duty Unpaid (DDU) are used to indicate two different types of sales and shipping transactions.
DDU is defined as the sale and delivery of goods to the buyer after payment of customs duties. Marine Insight describes in detail about the concept of Delivery Duty Paid in their article.
International Chamber of Commerce (ICC) and Incoterms®
Trading terms known as Incoterms® or International Commercial Terms are used globally in the shipment of commercial cargo.
The terms and abbreviations are published by the International Chamber of Commerce (ICC), amended and updated from time to time. Such terms are intended to standardize terms, conditions, and make trade communications easy between different parties operating on a global level.
It helps do away with confusion arising out of different terminologies and usages in trade prevalent in different countries. As such, Incoterms® is recognized internationally by governments, lawyers, trade bodies, and trade councils.
Incoterms® fixes the responsibilities of the seller, the carriage agent, and the buyer. It avoids ambiguity in the wording of agreements.
The Seven Rules of Incoterms® 2020
The Incoterms® 2020 has seven rules that cover all modes of transport. These seven rules are:
- EXW – Ex Works (showing the place of delivery)
- FCA – Free Carrier (showing the place of delivery)
- CPT – Carriage Paid to (showing destination)
- CIP – Carriage and Insurance Paid To (showing destination)
- DAP – Delivered at Place (showing destination); replaces Delivered Duty Unpaid or DDU.
- DPU – Delivered at Place Unloaded (showing destination); replaces Delivery at Terminal or DAT.
- DDP – Delivered Duty Paid (showing destination)
Delivery Duty Paid (DDP)
In export, a seller enters into an agreement with the buyer to ship goods to the buyer’s location overseas. Such agreements would specify the terms and conditions of doing business especially, those who would bear what costs related to the export of cargo.
One very important point of the agreement would be who would be responsible to pay the customs duties and taxes at the destination port.
When it is agreed between the exporter and importer that the former would pay all the customs duties at the destination port, then the agreement of sale or purchase is said to be Delivered Duty Paid (DDP).
The seller undertakes to send goods and deliver to the buyer at an agreed-upon location that could also be the destination port, his warehouse, or premises bearing all expenses, customs duties, and taxes.
The risk on the cargo is usually transferred to the buyer once the goods reach the destination port. The crucial point here is that the buyer and the seller must agree on all points related to the payment and the place or location of delivery beforehand.
In DDP agreements, the seller usually has an agent at the destination port who arranges payment of duties and taxes, any inspection fees, etc. and clears and delivers the cargo as agreed between seller and buyer.
Customs clearance documents and formalities differ between countries and it requires an in-depth knowledge of these formalities, which the local clearing agents will have.
Having a local agent helps to avoid delays in the clearance of cargo on account of incomplete documentation or ignorance of government or customs procedures. When goods are shipped DDP, any damages or loss to the cargo during transit is the responsibility of the seller.
In Delivery Duty Paid, the buyer pays the seller a price that is inclusive of freight, insurance – if applicable, and all customs duties and taxes. It is a consolidated amount that makes it convenient for the buyer in the costing of his goods.
In DDP agreements, it is the seller who bears most of the risks. However, including such a term in the trade agreement could have some disadvantages as well.
Sellers usually include a mark-up on all the expenses that they meet under the heading administrative fees. This results in the cost of the goods going up. Buyers can easily avoid this mark-up by arranging for the clearance and payment of duties and taxes at their end.
Delivered at Place (DAP)
In ICC’s latest publication ‘Incoterms® 2020’, the term DAP (Delivered at Place) has replaced DDU.
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Source: Marine Insight
