DDP, which stands for Delivery Duty Paid, is a shipping regulation by the International Chamber of Commerce in which the seller bears all the responsibility, risk, and expense of shipping goods until they reach the assigned location. It is a delivery agreement between the buyer and seller regarding global trade terms. Various shippers in the global trade use DDP incoterm. 

In this blog, we will understand DDP incoterm for both buyer and seller, when to use it, and its advantages. This post will help you understand the difference between DDP and other terms properly and use them accordingly. 

What is the meaning of DDP in international trade?

DDP incoterm is the opposite of Delivery Duty Unpaid (DDU), where the buyer must pay the taxes and expenses and bear the responsibility and risk during transportation. In shipping terms, DDP is the contract between the shipper and the receiver. This is one of the most common 7 incoterms used mainly by buyers who do not want to engage directly in the shipping process.  They can also hire third parties to align all the steps till the different types of ships arrive.

Under this, there are some DDP shipping requirements in which the seller has to ensure the goods reach the assigned place. After that, the risks shift to the buyer, who has to bear the expense of export and legal formalities with permissions and quotas related to goods. They will bear the costs of customs clearance formalities at the destination port, terminal handling charges, all customs duties, VAT, if applicable, and all the carrier’s charges until the decided location. 

The buyer bears all the charges from the loading port to the delivery port. The buyer also manages contracts and aligns the ship’s arrival with other ships’ bookings. During intermodal transportation, the arrival and exit of different modes of transportation at the decided ports are also the buyer’s responsibility. 

Reasons to use DDP

DDP incoterm is suitable for shippers to adopt because of some reasons: 

1. Seller’s liability for international fees: DDP, in shipping terms, holds sellers responsible for any customs fees to ensure the buyer does not have to worry. 
2. For secure delivery at the assigned location: Cargo shipping worldwide is complicated. DDP fees make the seller liable for ensuring that the goods are delivered to the pre-decided container depots in the proper condition. 
3. Protects the buyer: DDP protects the buyer from deception or fraud. The time required and expenses of DDP are too high for deceptors to bear. 
4. Assured secure delivery by sea or air freight: Shipping is a huge task, whether by air or sea. You have to be extra careful. DDP incoterm ensures that the seller will not take the consignment and then run. 

When to use DDP? 

Suppliers prefer to use DDP in international businesses when they can handle all the import formalities in other countries. It is most suitable for business-to-consumer shipments. You can use this term only after submitting the DDP shipping document. 

It would be best to use DDP incoterm when the supply chain expense and path are constant, as the expense and risks are with the seller only. Apart from all this, it would be most suitable for the buyers if they knew the seller and the freight forwarders they employed. 

Places where you should not use DDP freight term

There is a suggestion that US importers and exporters should not use DDP incoterm as the US has a high VAT value of 20% of the actual price. The seller has to bear the VAT, and the buyer gets a discount on the actual price after the VAT is refunded. 

Also, if the shipping is delayed, the seller has to handle all the expenses, from loading and cargo handling to additional storage or demurrage costs. 

Sometimes, it also becomes challenging for the buyer to get status information about the shipping as the buyer has no control over the shipping and no knowledge of the supply chain while using the delivery duty paid incoterm. 

DDP vs. Other Incoterm

Many other incoterms have global implications. Now, we will understand the difference between DDP and other incoterms to get an idea about the compliances and shipping regulations that we have to follow: 

1. DDP vs DAP in shipping terms: DAP (Delivery at Place) is quite similar to DDP; here, the seller also has to handle all the costs and risks of shipping, but the buyer has one responsibility: simplifying the import stage, like unloading and the costs of import taxes. In some places, DAP is prioritized over DDP because the buyer can better handle the complex import duties in DDP.

2. FOB and DDP in shipping terms: In FOB (Free On Board), more responsibilities are on the buyer rather than the seller. The buyer has to manage the shipment, cost of loading, import tax, and customs clearance. In FOB, risk is transferred when the goods are loaded. 

3. CIF and DDP in shipping terms: CIF stands for cost, insurance, and freight. This differs from DDP incoterm in shipping, as the seller has to transfer the goods from the terminal to the assigned location and bear the shipping expense but not the import formalities. CIF transport terms consist of some duties for the seller to protect buyers from fraud. 

4. FCA and DDP in shipping terms: FCA stands for Free Carriage Agreement. In FCA, the buyer has some obligations, including paying the charges at the terminal, managing the shipment, and paying the cost of import formalities with DDP shipping documentation. 

Advantages of Delivery Duty Paid  (DDP)

DDP incoterm offers some advantages needed for secure shipping as the goods are with the buyers that belong to the seller, so they need some assurance of what will happen if goods are not delivered. Let’s discuss the advantages of DDP incoterm: 

1. Buyer’s safety: In shipping terms, the topmost priority for DDP is buyers’ security, as the seller has to bear all the risks from loading to unloading and the miscellaneous shipping expenses, such as inspection or storage costs. 
2. Seller’s authority: DDP offers authority to the seller over the buyer, which means the seller can be guaranteed safe and secure container transportation and can choose the best routes less prone to accidents, theft, or changes in weather conditions. 
3. Easy evaluation of the costs: DDP incoterm is also helpful for predicting expenses on import, export, and customs clearance. 

Disadvantages of DDP in shipping terms

DDP incoterm has some disadvantages that must be considered for the smooth transportation of goods from one port type to another. So, let’s get an overview of some of DDP incoterm’s disadvantages. 

1. Excess responsibilities on the seller: The seller has many responsibilities that increase the chances of mistakes, as the seller does not know much about cleaning exports at the buyer’s place. 
2. Preferred cost by the seller: As a businessman, the seller will also try to cut expenses by choosing the cheapest transport and the slowest route, which will not cause shipping latency.
3. Buyer can’t speed things up: The seller undertakes the journey from the terminal to the assigned destination, so the buyer can’t increase the speed of processes as they have no control over that journey. 
4. High price paid by the buyer: The buyer has to pay the higher price as it is an additional cost to the product’s price. They have to pay a higher price if there are no supplement costs. 

DDP incoterm is Delivery Duty Paid, a shipping term generated by the International Chamber of Commerce. It is quite different from other incoterms as here, all the responsibilities lie in the hand of the seller, from loading, unloading, imports, export duties, taxes, customs clearance, and all the formalities. Buyers who want to ensure their complete security and don’t want to interfere in the shipping process will be the best incoterms they can use for their shipping. It is advantageous to the seller more than the buyers, then choose accordingly. 

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