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Cost and price
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Compliance and liability
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Control and flexibility
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Here’s what else to consider
If you are involved in international trade, you may have encountered the terms DDP and DAP, which are part of the Incoterms rules. Incoterms are standardized contracts that define the responsibilities and risks of the seller and the buyer in cross-border transactions. DDP stands for delivered duty paid, which means the seller is responsible for delivering the goods to the final destination, including paying all customs duties and taxes. DAP stands for delivered at place, which means the seller is responsible for delivering the goods to a specified location, but the buyer is responsible for paying the customs duties and taxes. While these terms may seem convenient and clear, they also pose some pitfalls and challenges that you should be aware of before using them. In this article, we will discuss some of the common issues that arise when using DDP and DAP terms, and how to avoid or overcome them.
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1 Cost and price
One of the main challenges of using DDP and DAP terms is determining the cost and price of the goods. The seller has to estimate the amount of customs duties and taxes that will be applicable in the destination country, which may vary depending on the product, the origin, the value, and the regulations. The seller also has to factor in the transportation and insurance costs, which may depend on the mode, the distance, the time, and the risks. The seller has to add these costs to the price of the goods, which may make them less competitive or profitable. The buyer, on the other hand, has to pay the agreed price without knowing the breakdown of the costs, which may make them less confident or satisfied. Therefore, both parties should do their research and negotiate the terms carefully, and use reliable sources of information and calculation tools.
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2 Compliance and liability
Another challenge of using DDP and DAP terms is ensuring compliance and liability with the customs regulations and procedures of the destination country. The seller has to obtain all the necessary documents and permits, such as invoices, certificates, licenses, and declarations, and submit them to the customs authorities. The seller also has to pay any fees, fines, or penalties that may arise from any errors, delays, or violations. The buyer, on the other hand, has to accept the goods and clear them from customs, and may be held liable for any damages or losses that may occur during or after delivery. Therefore, both parties should be familiar with the customs rules and requirements of the destination country, and use reputable and experienced agents or brokers to handle the customs clearance process.
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3 Control and flexibility
A third challenge of using DDP and DAP terms is maintaining control and flexibility over the delivery and receipt of the goods. The seller has to arrange and manage the transportation and insurance of the goods, and bear the risks of loss or damage until the goods reach the final destination or the specified location. The seller also has to comply with the delivery schedule and conditions agreed with the buyer, and may face difficulties or disputes if there are any changes or disruptions. The buyer, on the other hand, has to wait for the goods to arrive and clear them from customs, and may have limited options or influence over the transportation and insurance arrangements. Therefore, both parties should communicate and coordinate effectively, and use reliable and trustworthy carriers and insurers to ensure the smooth and safe delivery and receipt of the goods.
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4 Here’s what else to consider
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- James L. Haynes III
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In addition, some companies re-export goods and utilize a process of recouping the duty that was paid at the time of import. In the United States, for example this is called duty drawback. But in the case of DDP terms the importer is actually the shipper. So the rights for duty drawback would need to be transferred to the importer. This transfer may inadvertently disclose the sellers cost of goods or may exclude the shipment from being eligible for duty drawback. Another consideration is that there are local practices that are considered illegal in the origin country. An example would be where there is a local practice of “tipping” the Customs officials. Americans are precluded from this by law.
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