Delivered Duty Paid is a method of shipping primarily used in international shipping. Know more about DDP in this blog.
Delivered Duty Paid [DDP] is a common shipping method that the International Chamber of Commerce developed to ship products internationally. DDP helps standardize shipping options worldwide.
Most companies only use DDP when they transport products by air or sea. The customers gain significantly from DDP as there are fewer risks, obligations, and expenses. If the sellers don’t use DDP effectively, it will not be cost-effective for them. Although, in any scenario, the customers will always benefit from DDP.
What is Delivered Duty Paid?
DDP in international trade indicates a deal between the customer and the seller. According to this deal, the seller agrees to transport the product to a destination previously agreed upon. The seller will bear all the expenses until the product reaches the destination. Costs include items such as transportation, any loss or damage occurring during transit, customs duty, import tariffs, and other miscellaneous charges.
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Once the product is delivered to the pre-approved destination, it is the customer’s responsibility. The customer will be responsible for unloading and taking the product to their destination. In certain cases, the agreement between the seller and the customer might also include delivery of the product to the customer’s doorstep.
The International Chamber of Commerce (ICC) published DDP as an incoterm in its International Commercial Terms.
Why DDP is Used?
The following are the main reasons why sellers use DDP and not DDU as a shipping method:
- Safeguarding the customers. Using DDP ensures that the customers are not cheated. Only genuine sellers will use DDP, as the time and expense are not worthwhile if you are a fake seller. Furthermore, since the seller is responsible for transportation costs and damages, they take extra precautions while transporting the products to their customers.
- Ensuring the products reach their destination safely during international trading. While transporting products to international destinations, multiple things can go wrong. That is why every country has laws covering several factors, such as transportation, shipping cost, and import duties. These laws ensure that the seller only sends packages through the most cost-effective but secure routes.
- Ensuring that the products are delivered safely by either sea or air. Irrespective of whether the product is delivered by sea or air, it’s tricky to ensure it reaches the destination safely. DDP ensures that the customers are not scammed, and the sellers can’t run away after taking payment from the customers.
- Holding the sellers accountable for international charges. If customers have to pay customs charges, they will not order the products internationally. In DDP, the seller is responsible for paying these international charges, ensuring that the customer can order any product easily and comfortably.
The DDP Timeline
In DDP, the seller is responsible for the product till it is delivered to the customer. DDP has a basic supply chain timeline. This timeline has the following four steps:
- 1. The Seller Transports the Product to a Carrier. Sellers transport it to a carrier they trust. Alternatively, the carrier might pick up the product from the seller’s chosen destination. Sellers want to use their own trusted carriers as that reduces the cost of shipping the products. Usually, that also results in less overall hassle for the seller.
- 2. The Carrier Ships the Product to the Delivery Point. The carrier dispatches the product by any transportation method, such as vehicles, ships, or planes. The seller always prefers to work with a trusted carrier to make shipping the product less risky. It also ensures the safe delivery of the product involved.
- 3. The Product is Charged a VAT Once it Reaches its Destination. In this case, the seller is responsible for paying any Value Added Tax (VAT) associated with the product and shipment. The buyer has no liability for paying VAT.
- 4. The Carrier Delivers the Package at the Pre-Determined Destination. After the package is delivered to the buyer, that’s when their responsibility begins. For a company working on a D2C model, this is the point where the seller can expect to receive a call from customers in case there are any issues with the delivery.
What Does DDP Mean for an Importer and Exporter?
When sellers use DDP, they are responsible for transporting the product through a carrier. They must also take care of the transportation costs and get customs clearance from the customer’s country. Custom clearance includes getting the necessary approvals from the relevant authorities to receive the product. In certain cases, sellers might need an import license. However, the seller does not need to unload the products.
The various responsibilities of sellers include supplying the product, writing contracts and other relevant documents, making the product ready for export, and dealing with the necessary packaging. Sellers have to fulfill all requirements of customs, export, and import. They also have to bear the cost of transportation until the product is delivered to the customer at a previously agreed-upon destination.
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When using DDP, the sellers must acquire proof of delivery, pay for the inspection cost, and inform the buyer after they have delivered the product to the pre-determined destination. During DDP transactions, the seller is responsible for the product being damaged or lost during transportation.
When sellers use DDP, they are responsible for transportation and associated costs. If sellers transport products under DDP, they must pay import and export duties. The sellers must have the products cleared for export in the shipping port and then import the product to the destination.
Sellers can use DDP when the shipping cost is more or less consistent and predictable. Since the sellers are majorly responsible when using DDP, only serious sellers use them. However, experts are conflicted about how effective DDP is for exporters and importers in the U.S.
For example, exporters in the U.S. might be subjected to a Value Added Tax (VAT) of as high as 20%.
Another factor is that the customer is eligible for a VAT refund. Sellers might also be charged for unplanned storage and demurrage costs due to delays in carriers, customs, or agencies. Another risk with expensive consequences in foreign countries and the U.S. government is bribery.
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The importers in the U.S. have restricted information on the supply chain as the sellers and their forwarders control the transportation. Another factor to consider is that a seller may deliberately charge more for a product to cover all the miscellaneous costs they are responsible for.
If DDP is not handled effectively, there might be unnecessary delays due to customs checks. Moreover, if the seller uses cheap and risky transport options, it might delay the transportation time considerably.
Since DDP is extremely popular with customers, it’s a preferred method of shipment of products among buyers, especially for international businesses. Customers are not responsible till the product is delivered to them. However, the expenses a seller incurs using DDP might not always justify the product cost, and it might be unprofessional for the sellers.
If you run an eCommerce business and want to partner with a US fulfillment company offering international shipping capabilities, contact XPDEL. We have a global fulfillment presence in the United States and partner with companies that provide DDP services.
Not just another 3PL provider, XPDEL is a growth enabler. We are a leading hi-tech Fulfillment and Logistics company supporting Direct to Consumer (D2C) and Business to Business (B2B) supply chains. Our widespread network of Fulfillment centers enables us to handle nationwide delivery in the US efficiently. Data analytics is at the heart of our 3PL services, powered by advanced technology and led by industry experts.