Delivered Duty Paid (DDP) shipping is a shipping method which simplifies the complex customs regulations, taxes, and duties. It was formerly referred to as Delivered At Terminal (DAT) and defines the point in the shipping process when the consignor transfers the risks and costs of shipping to the consignee.
DDP shipping is typically used when consignees prefer a more hands-off approach when it comes to handling custom clearance and delivery fees. With this type of contract, the consignee usually benefits as the consignor assumes most of the risk and responsibility.
Key Responsibilities in DDP Shipping
When it comes to DDP shipping, both the consignor and the consignee have certain responsibilities. However, it is always subject to agreement between the 2 parties.
Consignor responsibilities
The consignor is the shipper/seller who initiates a shipment and is usually responsible for:
- Obtaining all necessary export licenses and documents.
- Clearing customs and complying with all regulations, laws and procedures for exporting goods from the origin country.
- Arranging for local transport of goods to the origin port of shipment, including any necessary packaging or crating.
- Paying for all costs incurred during the delivery process including transportation, export and import duties and relevant taxes.
- Delivering goods to a carrier at an agreed-upon port of loading (e.g. wharf), on time and in accordance with applicable terms.
In some cases, DDP shipping may also include additional services such as unpacking, assembly or installation. It depends on the agreement between the consignor and consignee prior to shipment.
Consignee responsibilities
The consignee is the receiver/buyer who receives the shipped goods and is usually responsible for:
- Obtaining all necessary import licenses and documents in accordance with applicable laws and procedures in their destination country.
- Ensuring that documents required for customs clearance (e.g. Commercial Invoice, Bill of Lading) are delivered on time.
- Arranging transportation for the goods from the destination port to their intended address.
Advantages of DDP Shipping
Both consignors and consignees will be able to look forward to some benefits when utilizing DDP.
- Reduces risk for consignees
With DDP shipping, the consignor bears all risk until the goods are delivered and accepted by the consignee. This means that if any issues arise during transit or delivery, the consignor is responsible for solving them in accordance with their agreement.
- Consignors get full control of the delivery process
Consignors have more control as they handle all aspects of getting goods from their origin to their destination. From customs clearance to taxes and duties, they have greater visibility of where the goods are at any given time.
- Greater customer satisfaction
Since DDP shipping takes most responsibility off the buyer’s hands, it can lead to greater customer satisfaction in international transactions. Customers in countries with complex customs regulations or those unfamiliar with the import process may appreciate the convenience and transparency that DDP shipping provides.
Additionally, buyers who want to avoid unexpected costs and delays associated with customs clearance may also prefer this shipping method.
Disadvantages of DDP Shipping
Another thing you should be aware of when considering a DDP shipping arrangement is that it can come with some potential downsides.
- Managing international import customs clearance
Managing international import customs clearance can be especially challenging for consignors under DDP shipping terms, since they assume full responsibility for goods until they are delivered. This means ensuring that the correct paperwork is in place and paying any duty and taxes due on behalf of the consignee.
This may be difficult for exporters who are not familiar with local customs regulations, or whose shipped goods may require special permits and approvals.
- Greater risk for consignors
Another downside for consignors opting for DDP shipping terms is that their financial risk increases significantly. They are now liable to cover any costs associated with damage or loss to goods that occur beyond the point of delivery.
It is therefore important for consignors to monitor shipments closely to reduce the possibility of something going wrong before delivery.
DDP vs Other Common Incoterms
Now that you know what DDP shipping is, you may be wondering how it differs from other common Incoterms.
DAP (Delivered at Place)
DAP, also informally known as DDU (Delivery Duty Unpaid), is a shipping method that removes some of the risks consignors face.
Key responsibilities of consignors and consignees
Under DAP, the consignee is accountable for unloading, packaging, labeling, customs clearance, duties, and taxes. The consignor is in charge of the delivery of goods and providing the necessary documentation.
Under DDP, the consignee is only responsible for unloading the goods. The consignor is entrusted with everything else including packing, customs clearance, duties, and taxes.
When to choose DAP shipping?
DAP shipping offers many of the same benefits as DDP but without as much risk to the consignor. Under DDP, the consignor shoulders all of the responsibility, which can leave them exposed to unknown costs, particularly when selling internationally.
It can be problematic when selling in some countries where the customs process is complicated, or when selling restricted goods. In these scenarios, it is better for the consignee to choose DAP and take responsibility as they are more likely to be familiar with the country’s customs regulations.
FOB (Free On Board)
FOB is a shipping term used to describe the point at which legal responsibility and cost of goods are transferred from the seller to the buyer. FOB is an important term because it determines who bears the risk of loss or damage during transportation.
Types of FOB Terms
FOB Origin
FOB Origin, or FOB Shipping Point, means that ownership and any responsibility for potential damage or loss shifts immediately from the consignor to the consignee once the goods are on the shipping carrier.
In this instance, consignees typically pay for shipping and other freight-related costs associated with delivering the goods from their port of origin to their destination.
FOB Destination
Under FOB Destination, the consignor retains ownership and responsibility until the goods reach the consignee’s specified destination.
Key responsibilities of consignors and consignees
Consignors are responsible for loading the goods and delivering them to a port location. On the other hand, consignees are responsible for unloading the goods at their port as well as paying any applicable customs duty or taxes.
It is important for both parties to establish a FOB agreement to avoid ambiguity over the responsibility for the goods.
Who pays for the freight?
There are two types of freight payment conditions:
- Freight Prepaid – The consignor is responsible for all shipping costs.
- Freight Collect – The consignee is accountable for all shipping costs.
FOB terms are usually coupled with freight payment conditions to clearly denote terms in shipping documents.
| Freight Origin, Freight Prepaid | The consignor bears all shipping costs, while the consignee assumes all risk of the goods at the shipping point of origin. |
| Freight Origin, Freight Collect | The consignee is responsible for all shipping costs as well as liability for the goods. |
| Freight Destination, Freight Prepaid | The consignor pays all shipping costs, and is responsible for the goods until they have reached the destination. |
| Freight Destination, Freight Collect | The consignor is responsible for the goods until they have reached the destination. The consignee will pay for all the shipping costs once the goods have arrived. |
Differences between FOB and DDP
FOB and DDP are 2 shipping and trade terms used in international commerce. They define the responsibilities and costs that a buyer and seller agree upon for the shipping process. Here are the main differences between them:
Responsibilities
FOB: In a FOB agreement, the consignor is responsible for delivering the goods to the destination. This includes freight, cargo insurance, and any customs duties or taxes.
DDP: For a DDP agreement, the consignor takes on all responsibilities and costs associated with delivering the goods to the buyer’s specified location. This includes transportation, insurance, customs clearance, and payment of all duties and taxes. The consignee only needs to receive the goods at the destination.
Costs
FOB: The liability of costs depends heavily on the freight payment conditions. Freight Prepaid would mean that the consignor is responsible for the costs, while Freight Collect usually dictates that the consignee will pay for all relevant costs.
DDP: The consignor bears all the costs associated with the transportation of the goods. The consignee only incurs the cost of receiving the goods at the destination.
Risk Transfer
FOB: The risk transfers from the consignor to the consignee once the goods are loaded onto the vessel or delivered to the named place of shipment.
DDP: The risk remains with the consignor until the goods are delivered to the consignee’s specified location.
In summary, FOB places more responsibility and cost on the consignee, while DDP shifts most of the responsibility and cost to the consignor. When choosing between these options, both parties should consider their needs, resources, and experience in international trade.
CIF (Cost Insurance and Freight)
CIF is an international trade agreement in which the consignor is responsible for the transportation of goods to a port of destination, as well as the cost of insurance and freight until the goods reach the port.
Key responsibilities of consignors and consignees
The consignor is responsible for the following:
- Providing the goods in accordance with the contract of sale.
- Arranging and paying for the shipment of the goods to the port of destination.
- Obtaining and paying for the insurance on the goods until they reach the port of destination.
- Paying for the freight charges to transport the goods to the port of destination.
The consignee, on the other hand, takes care of:
- Paying the purchase price of the goods in accordance with the contract of sale.
- Arranging for the customs clearance of the goods upon arrival at the port of destination.
- Paying any import duties, taxes, or other fees associated with the import of the goods.
- Delivery of the goods from the port to the final destination.
Differences between CIF and DDP
The main differences between CIF and DDP shipping are the responsibility for delivery, customs clearance, insurance, and costs. With CIF shipping, the consignor is responsible for delivering the goods to the port of destination and paying for insurance and freight charges until the goods reach the port.
In DDP shipping, the consignor is responsible for delivering the goods to the consignee’s premises or warehouse and paying for all associated costs until the goods are delivered.
EXW (Ex Works)
EXW shipping is where the consignor is responsible only for making the goods available at their premises or another named place (such as a factory or warehouse). Subsequently, the consignee takes charge of all aspects of the shipment from that point forward.
Key responsibilities of consignors and consignees
The consignor is responsible for ensuring that the goods are available at a specified location in the contract of sale. They also need to provide the consignee with any necessary documentation, such as invoices, to enable the consignee to arrange for the shipment of the goods.
The consignee assumes all risks and costs associated with shipping the goods from the specified location. They will need to obtain any necessary export documentation and handle all aspects of customs clearance.
Differences between EXW and DDP
The primary contrasts between DDP and EXW shipping involve delivery responsibility, custom clearance, insurance, and cost responsibility. With DDP, the consignor is accountable for delivering the goods to the consignee’s premises and covering all expenses until delivery.
Conversely, EXW requires the consignor to only make the goods available at their premises, and the consignee assumes all responsibility and costs from that point forward.