What is DDP Paid?
Duty Paid (DDP) is a delivery agreement whereby the seller assumes full responsibility, risk and cost associated with transporting the goods until the buyer receives or transfers them to the port of destination. This agreement includes the payment of shipping costs, export and import duties, insurance and any other expenses incurred during shipment to an agreed location in the buyer’s country.
Delivery charges paid (DDP)
Agreements paid duties paid
DDP is a shipping agreement that places maximum liability on the seller. For example, DDP applies to courier services where the full cost of the supply chain is under control and where there is a minimum cost gap. In addition to the shipping costs, the seller is obliged to organize import customs clearance, payment of taxes and import duties. The buyer and seller must agree on all the details of the payment and indicate the name of the destination before finalizing the transaction.
- DDP assigns the seller maximum responsibility for the delivery of the goods.
- The seller must organize all transport and associated costs, including export customs clearance and customs documents necessary to reach the port of destination.
- The risks for the seller are vast and include VAT costs, corruption and storage costs in the event of unforeseen delays.
Responsibilities of the seller
The seller organizes transport by a transporter of all kinds. The seller is responsible for the cost of the carrier and for acquiring customs clearance in the buyer’s country, including obtaining appropriate approvals from the authorities of that country. In addition, the seller may need to acquire an import license. However, the seller is not responsible for the unloading of the goods.
The seller’s responsibilities include the provision of goods; drafting of a sales contract and associated documents; export packing; organize export customs clearance; meet all import, export and customs requirements and pay all transportation costs, including final delivery to an agreed destination. The seller must arrange proof of delivery and pay the cost of all inspections. The seller must alert the buyer once the goods have been delivered to the agreed location. In a DDP transaction, if the goods are damaged or lost in transit, the seller is responsible for the charges.
It is not always possible for the sender to clear the goods through customs in foreign countries. Customs requirements for DDP shipments vary by country. In some countries, import customs clearance is complicated and time consuming, so it is best for the buyer, who has intimate knowledge of the process, to manage 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 can lead the seller to use different and more expensive delivery methods.
Example from the real world
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 finance company.
Robert Stein, Vice President of Mohawk Global Logistics, says there are reasons why U.S. exporters and importers shouldn’t use DDP.
American exporters, for example, may be subject to value added tax (VAT) at a rate of up to 20%. In addition, the buyer is eligible for reimbursement of VAT. Exporters are also subject to unforeseen storage and demurrage charges which may arise due to delays from customs, agencies or carriers. Corruption is a risk that could have serious consequences both for the United States government and for a foreign country.
For US importers, because the seller and their freight forwarder control the transportation, the importer has limited supply chain information. In addition, a seller may garnish their prices to cover liability charges for DDP shipping or mark-up freight invoices. According to Stein, in some cases, transportation bills have been increased from $ 3,000 to $ 7,000.
If the DDP is mismanaged, incoming shipments may be subject to customs review, resulting in delays. Late shipments can also occur because a seller can use cheaper and less reliable transportation services to reduce costs.