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DDP is one of the incoterms used in the context of international trade. DDP in shipping is used to refer to charges associated with the export of goods. It is an important term to know as it influences the total cost of the goods being exported for both the exporter and the importer.
Also Read: How to start Import and export business?
Internationally recognised rules which define the responsibilities of a seller and buyer in an export transaction.
What is DDP?
DDP stands for Delivery Duty Paid and refers to a delivery agreement signed by a seller/exporter and the buyer/importer which makes the seller liable to pay for all the shipping charges until they reach the destination.
Importance of DDP in shipping
When it comes to DDP in shipping, a buyer gets assured safe delivery for the payment made along with other benefits. Benefits of a DDP agreement include:
- Ensures safe delivery
Since the product is being shipped from country to country so many logistics challenges can happen. Goods can get lost, stolen, broken, etc. DDP makes the seller responsible for the safety of the goods from any shipping damages, which means that he/she will send packages on the best and safest routes.
- To hold sellers responsible for meeting international trade laws and associated fees
Under the DDP agreement, the seller must pay all the fees associated with shipping to the buyer. The seller must follow all laws regarding transport, import duties and shipping fees. The seller must arrange for import clearance and tax payment as well.
- Protect buyers from getting swindled
The seller assumes all the risk and cost associated with shipment to the buyer. This prevents customers from getting cheated and ensures the customers receive what they ordered.
The responsibilities of the seller
Mentioned below are the responsibilities of a seller who has signed a DDP agreement:
- Export packaging
- Drawing up a sales contract and related documents
- Satisfy all import, export, and customs requirements
- Arranging for export clearance
- Paying all transportation costs including last mile delivery
Costs involved in a DDP
There are various costs that then seller must pay for shipping internationally. Some of the general export costs to be borne by the seller include:
- Packaging cost
- Export license fee
- Transportation cost
- Shipping charges
- Loading and unloading charges
- Customs duty
- Transit insurance cost
Disadvantages of DDP in shipping
There are disadvantages of DDP in shipping for both buyers and sellers:
Disadvantages for the seller
- Seller is responsible for insuring the shipment
- Seller is responsible for loss or damage to the shipment
- Seller needs to have a permit to export
- Seller is responsible for the goods and all costs until shipment reaches the destination
Disadvantages for the buyer
- Seller will charge all the costs of shipment to the buyer in total cost of the goods being imported
- If buyer chooses to arrange transportation it adds to the risk factor and the cost of the goods bought
- Seller can also charge an added cost for the risk associated with import procedures
DDP vs DDU
DDP means Delivery Duty Paid while DDU stands for Delivery Duty Unpaid. While DDP refers to the seller paying all shipment charges DDU means the buyer is liable to pay customs charges.
DDU means that when shipment arrives at the port or the airport customs, the buyer will be contacted by customs and will have to settle any charges for customs to release the shipment.
Other important incoterms
Like DDP in shipping there are many other incoterms used to refer to different processes in the international trade realm. Here are some of them:
- Cost, Insurance and Freight (CIF)
An international shipping agreement which makes the seller liable to pay the costs, insurance, and freight of a buyer’s order while the goods are in transit.
- Free on Board (FOB)
FOB is the point at which the ownership of the goods is transferred from the seller to the buyer.
When the buyer accepts the title of the goods at the shipment point, it is called ‘FOB Origin’ or ‘FOB Shipping Point’. When the ownership remains with the seller until they reach the buyer, then it is called FOB destination.
- Free carrier (FCA)
A trade that mandates that a seller is responsible for the delivery of goods to a destination specified by the buyer. The seller pays transportation costs and assumes the risk of shipping damages until the buyer receives the goods at the agreed upon destination.
- Cost and Freight (CFR)
Cost and freight (CFR) is a legal term used in foreign trade contracts. In a contract specifying that a sale is cost and freight, the seller is required to arrange for the carriage of goods by sea to a port of destination and provide the buyer with the documents necessary to obtain them from the carrier.
- Ex Works (EXW)
Ex Works is when a seller sends a product to the destination mentioned by the buyer, but the buyer must cover the transport costs. Once the buyer receives the goods, he/she is responsible for loading them onto trucks and transferring them to a ship or plane carrier and meeting customs regulations.
DDP is a very useful term for importers and exporters. These terms will be written in the sales contract drawn by the exporter. To understand an import contract or an export contract one must be aware of these terms. These terms are especially useful for small businesses who are new to the global trade arena.