What Is the Incoterm DDP (Delivered Duty Paid)?

The DDP incoterm is an international shipping agreement where the seller handles all costs and liability until the goods are delivered to a named place i.e., the agreed-upon delivery point.

In comparison, DAP (Delivered At Place) places similar responsibilities on the seller, but DDP also requires them to cover import customs fees, documentation, and taxes. This can present many challenges for the seller if they are not familiar with the destination country’s import regulations and laws.

Key features of DDP

Here are the key features of the DDP incoterm:

Seller’s responsibilities under DDP

The seller is responsible for the entire transport arrangement and costs. They must package and mark the goods for export and obtain the export license. They must also handle customs clearance duty, taxes, and documentation (both export and import).

The seller prepares the commercial invoice and arranges for the pre-carriage and main transport to the destination country. They cover export and import pre-shipment inspection charges and arrange for further carriage to the named place, covering all associated costs for handling and loading until this point. 

The seller also provides proof of delivery once the goods arrive at the final delivery point.

Buyer’s responsibilities under DDP

The buyer bears minimal responsibility and risk in DDP. Once the goods arrive at the agreed-upon destination, the buyer must cover the unloading charges and submit the payment to the seller, as per the contract. They must also assist the seller in gathering the necessary export and import clearance documents. 

If further carriage is required to a point not specified in the contract, it is at the risk and expense of the buyer.

Point of delivery and risk transfer

Under DDP terms, the seller and buyer agree on a specific delivery point where the seller’s responsibility ends and that of the buyer begins. Once the goods are delivered to that point, the seller has no further involvement. From that moment onward, the buyer takes on all risks and expenses associated with the transfer of goods.

Advantages of DDP

Benefits to the seller

• Offering buyers a hassle-free purchasing process provides sellers with a competitive advantage

• Total control over shipping logistics, allowing freedom to choose cost-effective options

• Clearly defined involvement to the point of delivery at the named location

• No need to unload the goods at the chosen destination point

Benefits to the buyer

• Zero cost and responsibility until delivery to a designated point

• No surprise charges, improving financial planning

• Not required to cover import formalities or inspection costs

• No logistics planning needed, maximizing convenience

• Clearly defined role with full assurance that all transport-related costs are covered

Disadvantages of DDP

Challenges for the seller

• Undertaking detailed planning for navigating the entire logistics process

• Robust risk assessment required to ensure hassle-free delivery and maximum profit

• Handling all costs associated with delivering the goods to the delivery point

• Bearing total liability for the goods until delivery to that point

• Handling all export and import documentation, taxes, and duties

Challenges for the buyer

• High potential for shipping errors with inexperienced sellers

• Potentially slow delivery if sellers opt for the cheapest carrier options

• Bearing unloading responsibility at the point of delivery

• Potentially paying inflated costs with no logistics control

When to use DDP

DDP is a favorable option when the supply costs and transport routes are stable and predictable. This way, complications are minimized on the seller’s end and the buyer can expect a hassle-free delivery.

Buyers should opt for this term when they are confident in the seller’s logistics expertise. It appeals to them as they are not required to take part in logistical planning. Buyers with little to no experience in dealing with international shipping complexities or customs regulations can particularly benefit from the streamlined process provided by DDP.

Since the seller assumes the most risk, it is generally advanced exporters that prefer to use this incoterm to obtain a competitive edge. They can choose DDP as opposed to DAP or DPU (Delivered at Place Unloaded) if they are confident about navigating customs in the importing country.

FAQ

What is the difference between DDP and DAP?

DDP and DAP place similar responsibilities on the seller. The difference is that in DDP, the seller is responsible for both export and import duties, taxes, and documentation, while in DAP, the buyer handles all import formalities.

Is DDP cheaper than FOB for the buyer?

It depends on both the buyer and seller’s expertise. DDP requires the seller to make all transport arrangements. It can be cheaper for the buyer if the seller can negotiate favorable rates and not quote overly inflated prices. In FOB, since the buyer is responsible for arranging the main carriage, they have the freedom to secure economical carriers.

What is the difference between DDP and DDU?

DDU (Delivered Duty Unpaid) is an old incoterm that has now been replaced by DAP. However, the requirements remain the same i.e., the seller handles all costs and liability until delivery to a named location, but the buyer covers all import formalities, unlike in DDP.