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A shipping process is a complex endeavor, especially when goods have to be transferred from one corner of the globe to another. The risks involved are varied and figuring out the liability and accountability for the same. To tackle this issue, organizations like ICC declared a few standard practices and pricing structures. These practices are used by the sellers and buyers in the market to allocate the risk and liability to either one or both parties, along with appropriate financial provisions.
Delivery Duty Paid, or DDP is one such provision that transfers the risk during the shipping process to the seller until the goods reach the agreed-upon destination. Therefore, the seller handles every part of the shipping process for easier risk management. Let’s take a deep dive into the DDP concept so that you have all the necessary terms next time you make a purchase under the agreement.
What is the meaning of “Delivery Duty Paid”?
Delivery Duty Paid, commonly referred to as the DDP agreement, is a sales agreement that transfers the liability and risk of the fulfillment process to the seller. This agreement is widely used in International shipping transactions as the agreement favors the convenience of the buyers. However, the seller is burdened with additional costs and responsibilities. This includes shipping costs, packaging, labeling, warehousing, export and import duties, customs clearance, and last-mile delivery.
Since the seller assumes the entire shipping process, they must manage import and export paperwork and duties. This may result in additional costs to the buyer, but it transfers the responsibility and risks to the seller. The DDP agreement does not have any limitations for a mode of transportation, import method, etc. The cost of the goods and the shipping process must be declared before finalizing the transaction. This agreement also includes a final destination for the goods to be delivered.
Standard Obligations of the Seller Under the DDP Agreement
As the DDP agreement transfers most of the responsibility to the Seller, they have to handle and manage multiple processes involved in fulfilling an order. The key obligations of the seller as per the DDP agreement include the following:
Product invoice and documentation
Packaging and labeling
Export formalities and paperwork
Import clearance and taxes
Quality and security inspections
Final delivery to the agreed destination
Standard Obligations of the Buyer Under the DDP Agreement
Although the seller handles most of the processes regarding the transfer of goods under a DDP agreement, there are some obligations that the buyer has to fulfill to ensure a seamless transfer of goods.
Purchase of the product
Providing necessary paperwork for shipping and customs clearance
Unloading of the cargo
The obligations of the seller and buyer are mentioned in the DDP agreement, and both parties must fulfill their part. These obligations are mandatory to ensure the completion of the shipping process and the smoother transfer of goods. Now that we understand the process and its components, let's understand its importance.
Why is it essential to purchase/sell as per the DDP agreement?
DDP, or the Delivery Duty Paid agreement between a seller and buyer, is one of the twelve recognized rules declared by the International Chamber of Commerce. These rules are typically referred to as ‘incoterms’ and have been declared to bring order and uniformity to the global shipping process. The DDP agreement was brought into effect by the International Chamber of Commerce to bring order to the complex and ever-changing norms of cross-border logistics.
As technological advancements continue to reduce distances, the global exchange of goods will likely increase. To support this growth, the DDP agreement serves as a binding contract between the seller and buyer to establish explicit liabilities with respect to the shipping process. The DDP agreement is also widely used by international buyers as they transfer most of the liabilities to the seller and allow them to focus on their operations.
As the sellers handle the logistics process and the risks involved, DDP is also preferred for high-value shipments. This is because the sellers are aware of the precautions required to ship their products, and the buyer does not have to worry about international import/export rules and fees.
What are the risks involved while using Delivery Duty Paid?
The seller and the buyer must consider some risks for the shipping process. These risks may be operational or financial and can rack up to a significant number if not accounted for. Therefore, it is essential to consider these risks and take them into account while drafting the DDP agreement.
The risks involved for the seller are:
Storage costs due to delays
The cost incurred due to lost products
The risks involved for the buyer are
No control over freight
Higher freight charges
Restricted supply chain information
Hidden shipment and import costs
4 Important Benefits of using DDP
Whenever you plan to use an agreement, you need to understand the benefits and the reasons it was implemented in the first place. Some of the primary benefits of using a DDP agreement include the following:
Safeguard Buyer’s Interest
The DDP agreement was formulated to protect the buyer’s interest in the complex international shipping process. Since the seller assumes responsibility for the goods until they are delivered to the destination, the buyer's responsibility and liability are reduced to the minimum.
Ensures hassle-free delivery
If different parts of the delivery process are handled by separate entities, it is more likely that the shipment will be delayed. Under the DDP, since the seller handles the delivery process until the destination warehouse, it makes it easier to manage and track the delivery of goods.
Manage Potential Risks
As the seller assumes the responsibility of delivering the goods to the destination, the buyer does not bear any risk in the transit process. Also, sellers can minimize the risk by considering proper insurance and carrier for the shipping process.
Since the seller will include everything in the price of the goods, the buyer can know the actual cost of buying the product in the international market. The DDP agreement allows for a more transparent and comprehensive pricing structure.
An agreement becomes vital to execute a sales agreement on the international level successfully. There are complex risks involved in the process, and they must be outlined before the sale agreement is executed. A DDP agreement is a sales agreement between a seller and a buyer in which the seller assumes full responsibility for the goods until the agreed-upon destination. This includes shipping fees, import/export duties, insurance, and other expenses.
The DDP agreement allows for a seamless shipping process and lowers the overall risk. As a result, the seller assumes all the risk for the shipping process. This allows the buyer to be free of the responsibility and get the complete doorstep cost of the product. On the other hand, the seller can efficiently resolve issues if shipping delays and exceptions occur.
FAQs On Deliver Duty Paid
1) Should I choose CIF or DDP while buying/selling?
CIF (Cost, insurance, and freight value) holds the seller liable for transportation charges, insurance coverage, and the cost of the cargo till the shipment reaches the port. CIF is explicitly used for transportation via waterways, whereas DDP can be used for any mode of transport.
2) What is the difference between DDP and DAP?
While DDP is delivery duty paid, DAP is delivered at the place, which means the buyer is responsible for customs clearance, import duties, local taxes, and unloading of the cargo. DDP is buyer-friendly and hence a favorable option to simplify customer involvement in shipments. Because the seller takes care of all the responsibilities leaving just unloading of cargo, the buyer can avoid a lot of hassle.
Moreover, DDP has all the costs considered upfront, making it easier for sellers to devise prices accordingly. And DDP has more advantages, especially with cross-border transportation, where the seller bears all shipping costs and executes complex procedures involved in customs clearance. Moreover, DAP is a safe bet if the buyer needs more control over freight with less involvement in paying local taxes.