A deal wherein the seller of goods agrees to bear all costs until the goods reach the destination mutually agreed upon in the contract
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The term Delivered Duty Paid (DDP) is used in international trade to describe a deal wherein the seller of goods agrees to bear all costs till the goods reach the destination mutually agreed upon in the contract. They include the cost of all transportation, any loss due to damage during transit, and the payment of customs duty, import tariffs, and other relevant charges.
The buyer must assume responsibility only for unloading the goods and transporting them from the port to the warehouse if the mutually agreed upon terminal destination is the buyer’s port. In some cases, the contract may require the seller to pay for freight from the port to the buyer’s door.
DDP is one of the incoterms published by the International Chamber of Commerce (ICC) as part of its International Commercial Terms.
Summary
- The term Delivered Duty Paid (DDP) is used in international trade to describe a deal wherein the seller of goods agrees to bear all costs until the goods reach the destination mutually agreed upon in the contract.
- The buyer must assume responsibility only for unloading the goods and transporting them from the port to his/her warehouse if the mutually agreed upon terminal destination is the buyer’s port.
- Since the seller assumes most of the risk in such contracts, all the related costs are reflected in the selling price. Therefore, the buyer typically pays a higher price for the goods.
Understanding Delivered Duty Paid
For example, a buyer in New York enters into a DDP deal with a seller from London to purchase a consignment of goods. It means that the seller from London has to pay for the transportation of the goods from their storage to the London port and to the port in New York. If the goods are damaged in any way while they are being transported, the seller will have to bear the cost.
Once the goods have reached the port in New York, the buyer will only have to pay for the unloading of the consignment, while customs duty, import tariffs, and other local taxes will be paid by the seller. If the contract mentions the terminal destination as the port in New York, then the seller does not have to pay for additional freight. However, if the terminal destination is the buyer’s warehouse, then the seller must pay for it as well.
Since the seller assumes most of the risk in such contracts, all the costs are reflected in the selling price. Therefore, the buyer generally has to pay a higher price for the goods in these deals.
Costs Associated with International Trade
The costs associated with international trade start even before a deal is agreed upon by the buyer and the seller. The seller must bear some costs on their own regardless of the terms of the contract. They include the cost of printing product catalogs, the cost of obtaining export licenses and other related permits, and the cost of packaging. The buyer must pay for the goods purchased, naturally.
Usually, DDPs are used in cases where the supply of goods is stable and predictable. It may be due to the nature of the product, shipping procedures, or even the shipping route, which may be affected by geopolitical considerations (such as the Strait of Hormuz). Since the seller is subject to more market risks, they would prefer to use a DDP.
Cost Division under DDP Contracts
The terms of DDP contracts specify which cost is to be borne by which party. If the terminal destination mentioned in the contract is the buyer’s port, then the division of cost is as follows:
Related Readings
CFI is the official provider of the global certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful:
- Delivered at Frontier (DAF)
- Freight on Board (FOB)
- Negotiated Bill of Lading
- Voyage Policy
- See all commercial lending resources
FAQs
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.
Why is DDP not a good idea for the seller? ›
DDP is an incoterm that stands for “delivered duty paid.” Used in sea freight and air freight importing, when shipping under this Incoterm, the maximum responsibility is placed on the seller. DDP can be risky since sellers are responsible for the delivery, and may lack local destination knowledge and requirements.
When should one use DDP delivery duty paid freight terms? ›
Mainly used for international shipping, DDP is a common shipping method developed by the International Chamber of Commerce which helps to standardize shipping options throughout the world. Many companies will only use DDP when shipping goods by air or sea freight.
What does it mean if my package is delivered at DDU? ›
Delivered Duty Unpaid (DDU) is an international trade term indicating that the seller is responsible for ensuring that goods arrive safely at a destination. The buyer is responsible for import duties.
Who pays duties and taxes on DDP? ›
Under the Delivered Duty Paid (DDP) Incoterm rules, the seller assumes all responsibilities and costs for delivering the goods to the named place of destination. The seller must pay both export and import formalities, fees, duties and taxes.
What is the risk of DDP? ›
Potential Issues DDP
Because risk is transferred to the buyer once the shipment is handed over at the destination terminal, the seller is responsible for the loss of or damage to the shipment. This means the seller is responsible for insuring the shipment, or paying for the loss if anything goes wrong.
What are the problems with DDP? ›
It imposes the highest risk of loss on sellers because they have to assume all charges to the point of delivery. This does give the seller control over the shipment, but it also means they are responsible for the goods from the time of purchase until they reach their port of destination and are ready for unloading.
What is a criticism of DDP? ›
One common criticism of DDP is the lack of randomized clinical trials to support the efficacy of DDP.
Should I take FOB price or DDP? ›
The DDP vs FOB is primarily based on who pays for the delivery and related costs. In DDP shipping, the seller pays these costs; in FOB shipping, the buyer pays these costs.
What are the disadvantages of DDP Incoterms? ›
No control over the movement or importation of the goods. No direct contacts to track a shipment other than through your vendor. No ability to interject in the event of an issue. Hidden transport and import costs may lie in the markup calculated by the seller.
Advantages of DDP
They receive the goods at their specified location without having to navigate complex import procedures. Predictable Costs: Buyers can more accurately predict the total cost of acquiring the goods since DDP includes all transportation costs, import duties, and taxes.
How does DDP work? ›
DDP shipping, or Delivery Duty Paid shipping, is a shipping term that means the sender will pay the fees associated with delivering an international shipment and assume all risk for that package.
How long does a package stay at DDU? ›
Often referred to as the Last Mile, packages arriving at a DDU are sorted to carrier routes and sent out for delivery. This process typically takes one day or less from arrival at the DDU to consignee delivery.
Who pays for shipping in DDU? ›
DDU (Delivered Duty Unpaid): The customer only pays for shipping at checkout. Any additional duties, taxes, or customs fees are paid once the package arrives at customs.
When was DDU removed from incoterms? ›
DDU was removed from the official list of Incoterms® in the 2010 revision.
What is the difference between shipping and DDP? ›
With DDP, buyers are not liable for the actual shipping costs, making them more likely to purchase products without fear of being scammed or having to pay high taxes. DDP shipping is used to protect the buyer, as well as hold the sender responsible until the customer receives their product.
How does DDP shipping work? ›
What is DDP Shipping? Delivery Duty Paid (DDP) shipping is where the seller takes all responsibility for fees and risks of shipping goods until they are delivered to an agreed place by the buyer and seller.
Is DDP shipping door to door? ›
Under a DDP Incoterm, the seller provides literally door-to-door delivery, including customs clearance in the port of export and the port of destination. Thus, the seller bears the entire risk of loss until goods are delivered to the buyer's premises.
Can you use DDP for domestic shipments? ›
Fortunately, by utilizing Incoterms, you can make this as simple as changing EXW to DDP [name your delivery point] destination. Domestic and international use.
