Why Sellers Should Beware Of DDP Delivered Duty Paid

DDP Delivered Duty Paid Incoterms 2020 is the last Incoterm of the D group. From the seller’s perspective, it should be the last Incoterm of choice: in fact, under DDP Incoterms 2020 the seller’s responsibilities and obligations are the highest than under any other Incoterms rule.

DDP should be used only by international exporters with extensive logistics capabilities and a strong understanding of the legal systems of the countries where they carry on business.

Delivery And Transportation Always At Destination

The D group Incoterms is a category of three Incoterms whereby the place of delivery and the physical transportation of the goods occur at destination, at the place named by the parties:

DDP Delivered Duty Paid (named place of destination)

As per DAP and DPU, also DDP can be used with any mode of transport.

As we just wrote, the place of delivery can be anywhere at destination that the parties agree upon: the port of arrival, a terminal, the buyer’s premises.

The seller delivers when the goods are made available to the buyer at the named place at destination, cleared for import but not unloaded from the delivering vehicle.

Unless the seller has a legal presence in the importing country, he may need an import agent to carry out import clearance.

The seller must pay for all transportation, customs, and related costs up to the named place of delivery at destination.

With regard to transportation, DDP has been amended in the 2020 publication so that now it specifically allows the seller and the buyer to use their vehicles at origin or destination.

From a risk perspective, the seller bears the risk of loss or damage to the goods up to the named place of delivery at destination.

Basically, under DDP the seller and the price that he quotes to his customer overseas, as well as responsibility for risk of loss or damage to the goods, includes everything.

A Practical Example

Let’s use an example.

A US exporter of computer hardware from Chicago sells to a buyer in Tel Aviv, Israel, for an agreed price of USD 500,000 under DDP, customer’ site:

DDP Delivered Duty Paid (Israeli company’s address, Tel Aviv).

What does that mean for the seller? Everything: the price of the goods, transportation from the factory in Chicago to the city’s airport (if the mode of transport is air freight), all the documentation, customs clearance in Israel, import duties and VAT in Israel, plus the final transportation from Tel Aviv airport to the customer’ site. All of this is on the seller.

DDP Delivered Duty Paid Incoterms 2020

Due to the presence of a free trade agreement between the USA and Israel, the seller would not pay import duties. Therefore, in this example, things might be easier even under DDP, but in other cases that might not be the case.

Last important point: the American seller has to import the goods in Israel on behalf of the Israeli buyer. A spontaneous question is: can he do it? Does the American seller have a legal presence in Israel that allows him to import the goods? Can he find a local customs broker that can perform the task for him?

Not Your Everyday Incoterms Rule

You get the point: DDP places so much burden on the seller that the choice of using this Incoterm becomes not only a matter of price, but also of feasibility and risks.

We are not saying not to use this Incoterm, but, as always with Incoterms, be aware of what you are signing up for, understand if you want to do that, and, if the answer is yes, price it accordingly.

Globartis Research

Want to know more about export imports? Join now our global network of exporters and importers!