What Is Delivered Duty Paid — DDP?
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. This agreement includes paying for shipping costs, export and import duties, insurance, and any other expenses incurred during shipping to an agreed-upon location in the buyer's country.
Delivery Duty Paid (DDP)
Delivered Duty Paid Agreements
DDP is a shipping agreement that places the maximum responsibility on the seller. For example, DDP applies to courier services where the full supply chain cost is under control, and there is a minimum cost variance. In addition to shipping costs, the seller is obligated to arrange for import clearance, tax payment, and import duty. The buyer and seller should agree on all payment details and state the name of the place of destination before finalizing the transaction.
- DDP places maximum responsibility for the delivery of goods on the seller.
- The seller must arrange all transportation and associated costs including export clearance and customs documentation required to reach the destination port.
- The risks to the seller are broad and include VAT charges, bribery, and storage costs if unexpected delays occur.
The seller arranges for transportation through a carrier of any kind. The seller is responsible for the cost of the carrier and acquiring customs clearance in the buyer's country, including obtaining the appropriate approvals from the authorities in that country. Also, the seller may need to acquire a license for importation. However, the seller is not responsible for unloading the goods.
The seller’s responsibilities include providing the goods; drawing up a sales contract and related documents; export packaging; arranging for export clearance; satisfying all import, export, and customs requirements, and paying for all transportation costs including final delivery to an agreed-upon destination. The seller must arrange for proof of delivery and pay the cost of all inspections. The seller must alert the buyer once the goods are delivered to the agreed-upon location. In a DDP transaction, if the goods are damaged or lost in transit, the seller is liable for the costs.
It is not always possible for the shipper to clear the goods through customs in foreign countries. Customs requirements for DDP shipments vary by country. In some countries, import clearance is complicated and lengthy, so it is preferable if the buyer, who has intimate knowledge of the process, manages this process. If a DDP shipment does not clear customs, customs may ignore the fact that the shipment is DDP and delay the shipment. Depending on the customs decision, this may result in the seller using different, more costly delivery methods.
Real World Example
DDP is used when the cost of supply is relatively stable and easy to predict. The seller is subject to the most risk, so DDP is normally used by advanced suppliers, according to Trade Financing Global, an alternative trade financing company.
According to Robert Stein, vice president of Mohawk Global Logistics, there are reasons U.S. exporters and importers should not use DDP.
U.S exporters, for example, may be subject to value-added tax (VAT) at a rate of up to 20 percent. Moreover, the buyer is eligible to receive a VAT refund. Exporters are also subject to unexpected storage and demurrage costs that might occur due to delays by customs, agencies, or carriers. Bribery is a risk that could bring severe consequences both with the U.S government and a foreign country.
For U.S. importers, because the seller and its forwarder are controlling the transportation, the importer has limited supply chain information. Also, a seller may pad their prices to cover the cost of liability for the DDP shipment or markup freight bills. According to Stein, in some cases, freight bills have been marked up by $3,000 to $7,000.
If DDP is handled poorly, inbound shipments are likely to be examined by customs, which causes delays. Late shipments may also occur because a seller may use cheaper, less reliable transportation services to reduce their costs.