There are all kinds of opportunities available to companies who want to ship their products to customers around the world. Choosing the right fulfilment and shipping options is often the key to driving better business results. Plus, if you can offer fantastic shipping to customers, you also benefit from happier, more satisfied clients.
Delivery Duty Paid, or DDP shipping is a form of delivery where the seller takes on the costs and risks of shipping goods until the reach a specific environment or location. Usually, this process is used for international shipping, and was developed by the International Chamber of Commerce. The Chamber of Commerce offers guidance on standardized shipping options worldwide.
DDP shipping is often the go-to choice for companies shipping products by sea freight or air. Buyers can benefit heavily from this kind of shipping because there’s less risk for them to consider, as well as lower costs and liabilities. Although DDP shipping is a fantastic deal for the buyer, it can often place huge burdens on the seller. If anything goes wrong with shipped products, the seller is the one that loses out. The complex rules associated with DDP shipping also means that each country has its own set of guidelines to consider.
DDP Shipping vs DDU
DDP shipping is an agreement between sellers and buyers that places the costs, risks, and responsibilities of transporting goods directly into the hands of the seller – until the point when the buyer receives the goods they’ve requested. With DDP, buyer’s won’t be responsible for actual costs of shipping, which means they’re more likely to buy.
The difference between DDP and DDU is that delivery duty unpaid, or DDU requires the end customer receiving the product to pay any duty fees incurred when an item enters a specific country. Customers usually contact the customer following a DDU agreement, when a package arrives in a shipping port. The customer might have to visit a post office or depot to collect the item.
In many cases, DDU can be complicated, as customers don’t always recognize their order was DDU, and will contact the merchant’s customer support line and cancel the order. In some cases, these customers will even refuse to get the order, and it will be returned to the sender.
DDP is therefore often considered to be the much better option for customer experience, e as it takes all the fees into consideration for a buyer initially, which means that the merchant can give a transparent insight into pricing.
Responsibilities with Delivery Duty Paid
Sellers’s responsibilities in DDP shipping agreements are often much higher than those associated with other shipping strategies. The seller is responsible for arranging transportation through carriers of their choice, and they will also be responsible for the cost of the carrier, custom clearance in the customer’s country, and obtaining the correct authority approvals. The seller may also need to get a license to import goods, but they will not be responsible for unloading goods.
Sellers will also have to provide the goods, draw up a sales contract and documents, export the correct packaging, arrange for export clearance, satisfy export, import, and customs requirements, and pay for various transportation costs, including final delivery.
Sellers also need to arrange for proof of delivery and pay the cost of all inspections. They also need to alert the buyer once the goods have been delivered to the agreed location. With a DDP transaction, if goods are damaged or lost in transit, the seller will be liable for the costs.
In regard to customs, it’s not always possible for the person or company shipping the goods to clear the goods through customs in foreign countries. Custom requirements for DDP shipments often vary by country, and in some countries, import clearance is lengthy and complicated.
If a DDP shipment doesn’t clear customs, this may lead to customs ignoring the fact that the shipment is in a DDP contract, which will delay the shipment. This could require the seller to use more costly shipping methods.
Special Considerations with DDP Shipping
In most cases, DDP is used when supply costs are quite stable and predictable. The seller takes on the most significant risk, so DDP is common among more advanced suppliers. However, many experts believe there are reasons US exporters and importers should not be using DDP. Exporters in the US, for instance, may be subject to things like value-added tax.
Buyers are sometimes eligible to receive a VAT refund, whereas exporters are sometimes subject to unexpected storage costs that can occur due to delays by customs, carries, and agencies. Bribery is a risk that could lead to severe consequences for both the US government and a foreign country in this case. For US importers, because sellers and the forwarding company are both controlling the transportation, the importer has minimal supply chain information.
With delivery duty paid, there’s a lot of pressure on US importers. Because the seller and forwarder are controlling everything from customs clearance to import duty, it’s hard to track all incoterms. If DDP is handled badly, the inbound shipments are more likely to be examined by customs, which leads to delays. Delays are more common than they are with DAP.
What Happens During DDP Shipping?
The concept of DDP might seem complicated, but it actually follows a basic timeline. The seller retains most of the liabilities until products reach the buyer. Major steps include:
- Seller pays to have the package dropped off with a carrier. The carrier might pick the package up too. This reduces the cost of shipping overall.
- The package goes to its destination, and the seller bears the responsibility of making sure it arrives in one piece.
- The package reaches the destination, and the seller’s responsibilities includes paying VAT. Although the seller pays VAT, the buyer may get a VAT refund.
- The package is delivered to a named destination and the maximum obligation is completed for the seller. This means that the buyer now has the liability.
- After the product arrives, the buyer is now responsible for the product. Although the seller may still need to deal with things like import customs, their responsibility is over.
When to Use DDP
There are a lot of ways to send products around the world, but you need to come to terms with some complex terms before making your choice. Aside from finding out what DDP means, you’ll also need to look into things like demurrage, customs duties, CIF, CFR, FCA, and ICC.
Ultimately, the biggest benefit of delivered duty paid, despite issues with DDP incoterms and shipping costs for the seller, is that it protects the buyer. The shipping terms are excellent for the buyer’s protection, but sellers may need to consider other options like EXW and FOB for international trade.
If you want to reassure your customer, you’re not scamming them, then using DDP for importing to a named place or place of destination is an excellent choice. This form of shipment ensure you can keep packages safe with every freight forwarder, until it reaches the destination country or destination port.
Unfortunately for sellers, DDP also comes with a lot of fees to consider, such as:
- Shipping fees: Shipping products by air or sea is often quite expensive.
- Import and custom duties: Your importer of record will also charge fees. Late shipments may need to be considered if you don’t choose the right transport service.
- Damage fees: Damage incurred to products is a cost paid for by the seller. You will also need to pay for any damage done to the products.
- Shipping insurance: Though not obligatory, many sellers prefer to use shipping insurance.
- VAT: The seller is responsible for paying the VAT with DDP shipping. The customer may receive a VAT refund.
DDP shipping can be quite expensive for a seller to handle. It’s important to assess your obligations and costs as a seller before you begin using DDP shipping, so you can budget accordingly, and sell products for the correct price.
With so many trade terms to consider when you’re shipping products to customers, it’s easy to see how people can often get confused. Finding the right strategy for shipping can be complicated. If a buyer has to pay customs fees, there’s a chance no sale will happen, because the cost of the fees isn’t obvious.
When sellers pay international fees to get the product to the customer, there’s a higher chance of a sale. DDP allows for smoother experiences with purchasing, because the buyer doesn’t have to worry about paying complex fees. Unfortunately, DDP also means there’s a lot of extra pressure on the seller. It’s important to think carefully about your responsibilities before you adopt DDP shipping. Not every seller will be well equipped for this kind of shipping strategy.