What is the Delivered Duty Paid (DDP) Shipping?

7/3/2023

What is the Delivered Duty Paid (DDP) Shipping?

Delivery Duty Paid (DDP) Shipping is one of the 11 Incoterms issued by the International Chamber of Commerce (ICC). This incoterm defines the roles and responsibilities of the buyer and the seller in international transactions. This set of rules clarifies the tasks, costs, and risks that each party has to accept in the transaction. Let’s understand the ICC-defined rules for DDP shipping.

What is Delivered Duty Paid (DDP) Shipping?

Delivered Duty Paid (DDP) Shipping is when the seller takes complete responsibility for delivering the goods to the buyer’s destination. In this format, the seller bears all costs and risks in order fulfilment. These include the cost of transportation, customs clearance, applicable taxes, and so on. The buyer is only responsible for paying a fixed cost to the seller to acquire the products at their desired destination.

ddp incoterms

Advantages of DDP Shipping

Order fulfilment through DDP shipping is quite advantageous for the customer as they only have to pay once. They do not have to worry about risks, processes, and finances involved in transport, storage, and customs clearance.

This makes DDP delivery quite convenient for the customer. It translates into a more positive customer experience. In turn, it encourages customers to buy from sellers who provide a delivery duty paid shipping.

The seller can use shipping by DDP as a marketing and selling point to acquire new customers and inspire loyalty through positive customer experiences. This format is all the more beneficial for eCommerce businesses as it addresses some of the most common cart abandonment issues.

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Delivery through DDP resolves several cart abandonment issues including extra costs, hidden costs, speed of delivery, and cost calculation. This makes them more likely to purchase from an eCommerce that offers favourable DDP shipping terms. 

Furthermore, as the seller holds complete responsibility for DDP shipment they also get complete control over the logistics and customs clearance processes. 

Disadvantages of DDP Shipping

DDP shipping terms put a lot of responsibility on the seller. They have to deal with the costs and risks associated with transportation, storage, customs clearance, and more. If anything goes wrong at any of these stages the seller is exposed to financial losses, fines, and legal penalties.

With delivered-duty-paid shipping, the seller not only has to complete all stages of order fulfilment but is also bound by the delivery date. If the DDP shipments get delayed, the seller would have to deal with a dissatisfied customer. It can also adversely affect the seller’s reputation in the market.

Responsibilities Involved in DDP Shipping

The seller is responsible for all processes and activities involved in order fulfilment. The biggest responsibilities in DDP shipping involve logistics and customs clearance. Let’s understand this with an example. 

The process for shipping with DDP begins when the seller receives the order from the customer. For this example, the seller ships goods from Sydney (Australia) to a buyer in Los Angeles (USA). The seller will shoulder the following responsibilities in the process:

  • The seller needs to transport the goods from their warehouse to the seaport or airport of Sydney.
  • They need to submit the relevant documents and pay applicable customs duties to clear the goods for export from Australia.
  • The seller will have to hire a reliable logistics partner for international shipping.
  • The shipping company transports the goods to the seaport or airport of Los Angeles, USA.
  • The seller has to track the DDP shipment throughout its journey until it safely reaches Los Angeles.
  • Before the goods reach Los Angeles, the seller needs to make necessary arrangements for the import customs clearance process in the USA. This includes submitting relevant documents, acquiring import permits (If required), and paying customs duties, taxes, and other charges.
  • After customs clearance, the seller needs to receive the goods from the authorities and check the conditions of the goods.
  • Then the seller has to transport the goods to the buyer’s destination via road freight transport.
  • Finally, the seller has to complete the order fulfilment by getting proof of delivery from the buyer.

During this order fulfilment process, the seller handled customs clearance in two different countries. In this process, they had to encounter legal procedures such as the submission of documents to customs. These would include cargo reports, certificates of origin, commercial invoices, export/import declarations, bills of lading, etc.

The seller also needs to acquire import and export permits for certain goods if required. For instance, if the goods include hazardous materials the seller will need a permit for export, import, and shipping.

Furthermore, the seller also had to manage domestic and international logistics to deliver the goods to the buyer. As the journey involves international shipping, the seller has to follow several trade and transportation protocols concerning the declaration of goods, insurance, labelling, packaging, and so on.

Costs Involved in DDP Shipping

Alongside the processes, the seller also has to incur the cost associated with logistics and customs in DDP shipping. Below are some of the biggest payments the seller has to make to complete delivery in DDP shipping.

Logistic Charges

The seller has to pay for the transportation and storage of goods at several stages of DDP shipping. The cost of logistics depends on the distance between the origin and destination, the weight of the DDP shipment and the chosen modes of transport.

Insurance Charges

All goods need to be insured for DDP delivery. The cost of insurance depends on the value of goods and the length of the journey. These charges protect the seller in case of unfortunate events during transportation.

Custom Duties & Other Charges

The seller is responsible for paying both export and import duties for customs clearance of the DDP shipment. This duty is usually based on the type of goods and their value. The seller must assess the customs laws of exporting and importing countries to calculate customs fees and other applicable charges. 

Aside from customs duties, the seller may have to incur additional charges based on customs law and tariff classifications. These charges include processing fees, permit charges, countervailing duties, etc. Some countries also require certain goods to stay in quarantine before customs clearance. In such cases, the seller also has to pay for the storage of goods during the quarantine period.

Taxes

In DDP shipping, the seller has to pay applicable taxes for importing and exporting goods between countries. The rate of tax depends on several factors such as the type of goods, their value, and the trade relationships between the exporting and importing countries. 

The seller may also benefit from trade agreements between importing and exporting countries. These benefits include preferential tariff rates, tax deductions, refunds, tax exemptions, and so on. Such benefits can significantly reduce the cost of shipping with delivery duty paid.

Conclusion

With all the risks, responsibilities, and costs involved, DDP shipping may seem like a tall order for the sellers. But, it also grants complete control over the order fulfilment process and customer experience. 

Delivery duty paid shipping can be advantageous if you are aware of the relevant customs laws, trade agreements, and logistics procedures. You also need to be aware of the costs incurred at different stages of order fulfilment and the associated risks.

Alternatively, you can get a reliable logistics partner to handle transport, storage, and customs clearance on your behalf. An experienced logistics company, like PACK & SEND, can help cut down the costs and risks involved in DDP shipping. They can also free you from the hassles of customs clearance in different countries.

Image sources: International Commerical Terms Guru, Baymard Institute 

 

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