Incoterms 2010: What is Incoterm DDP Delivered Duty Paid?

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Incoterms 2010 DDP Delivery and Duty Paid
Photo by Jeremy Dorrough

Overview

The Incoterms 2010 DDP means Duty and Delivery Paid.

Ask An Expert

Discussion on Incoterms 2010 DDP with renowned global trade expert Murdo Beaton and Abdul Mann, creator of the cloud based export solution EdgeCTP.

Geoff:
Today we’ll be discussing DDP, including how and when to use it. So Murdo, what is DDP (Delivered Duty Paid)?

Murdo:

DDP as an Incoterm stands for Delivered Duty Paid. This is the Incoterm that exposes the seller to all obligations in terms of moving the transaction product from the seller’s own manufacturing position to the buyer’s desired destination. The seller is responsible for all aspects of importing the subject goods into the destination market and attending to all the customs procedures.

It is maximum exposure to the actual seller. Now the seller really has to be extremely careful when using this term, particularly since the seller is going to be what’s known as the importer of record in the country of destination. That is, the seller has total liability for ensuring that the importation into the country of destination is done properly and that the payment of all customs duties and taxes are actually completed.

Abdul:
By the seller, Murdo?

Murdo:

By the seller. The seller pays all costs up to the buyer’s final desired place of destination with the goods ready on the delivery vehicle to be offloaded by the buyer.

Abdul:

So from a buyers point of view this is the ideal Incoterm.

Murdo:

This would be the ideal Incoterm from a buyer’s point of view, particularly if the buyer wished to have no distress in actually bringing the subject goods that he had brought to his factory. Now I said that the seller has to be extremely careful because they are acting as the importer of record and they are responsible for all destination market customs duties and taxes. They must be sure that they have taken into account all the provisions that are necessary to ensure that the subject goods can actually enter the market.

If these goods require any particular certification from any destination market government authorities, they must have it. If the goods are required to have attained a certain standard, then these standards must be verified and documents to such an effect provided. There is a whole range of issues that must be considered by the seller in terms of his own product in order to ensure that it enters the destination market without causing the seller quite a substantial amount of distress if the seller actually gets it wrong.

Abdul:

So from a buyer’s perspective, is it the buyer that is dictating to the seller that they are going to use DDP? The buyer could turn around and say they’re not competent enough in the import/export business and they wish to have the widget that the seller provides but would like it to be delivered stress free as you put it to the buyer’s door.

Murdo:

Indeed that could be one of the reasons that the buyer would just say Look, I want the goods delivered to my premises. I’m not interested in all the requirements in order for them to be taken from the seller’s premises to my premises. The seller can deal with all that. I’m not really interested, I don’t want to know.Now the seller of course wants to be competitive and does not want to do anything that is likely to annoy the buyer.

If the buyer wishes the goods to be delivered to their premises with the seller undertaking all the requirements, the seller might be reluctant to object to that in case they lose the order. Now in order for a seller to adopt this term it cannot be stressed enough that the seller has to be absolutely certain that they have the administrative capability of attending to all the potential requirements so that they can successfully discharge the contract and get properly paid for it.

Abdul:

So responsibility is with the seller from basically end to end…

Murdo:

End to end, yes.

Abdul:

End to end responsibility. So we spoke about responsibility on some of the other ones but this is super responsibility. So customs clearance is also the responsibility of the seller in this case. So knowing your destination country’s customs requirements is super critical in this case as well.

Murdo:

Absolutely and you may well choose to appoint a customs broker in the destination market to attend to all such matters but that doesn’t suggest for one minute that the seller themselves should be unaware of what the requirements are. Even though they delegate the service to a customs broker in the destination market they should still be aware of what is required and that customs broker, should they appoint such an entity would still require to be given any documents that were necessary to ensure that the goods could be safely cleared into the country of destination.

Abdul:

OK, a couple of leading questions then if I may? If I was a seller and I was in the unfortunate situation where my buyer has stipulated that we need to use DDP, or I want to be super competitive and use DDP. Now I’m sitting there thinking how am I going to do this and I think what I’ll do is pass this onto a freight forwarder or I might decide I want to pass this whole responsibility onto my logistics company. Before we look at that, what is the difference between a freight forwarder and a logistics company in the services that they could possibly provide with regards to DDP?

Murdo:

Generally the traditional freight forwarder would be and is able to provide the seller with all the services that the seller would require in order to achieve this DDP proposition. With most freight forwarders, even though they themselves may not necessarily have offices in these destination markets, will have freight forwarding entities in the markets with whom they correspond as far as business is concerned and work with as far as business is concerned. So a good freight forwarded could indeed deliver for the seller this DDP requirement.

Now from a logistics position in today’s global market, again a lot of these logistics companies are developing themselves into certain categories. We have the 2PL category, which is where we would find the traditional freight forwarded, then we have the 3PL category which is a farther provision of services by such a freight forwarder, then we have the 4PL which is yet again another advancement in the range of services that particular freight forwarder could provide. Ultimately in the global supply chain, we are moving progressively towards the 5PL where the freight forwarder really becomes an extension of the company’s own export activities.

Abdul:

When you say PL, what do you mean by that?

Murdo:

Parties, third party logistics, fourth party logistics.

Abdul:

Party logistics, OK. So each level from 2PL, 3PL, 4PL, 5PL is a service.

Murdo:

It’s an upgrading of the level of service that can actually be provided. So yes, in the freight service industry there is the capability undoubtedly of delivering to the seller on DDP but I said that even though it exists it doesn’t remove the seller’s obligations to be aware of what is required irrespective of the professionalism of their freight agent or logistics company.

Abdul:

So as a seller/ exporter, as a business that wants to send their widget overseas and where I’m going to be using DDP as an Incoterm, the responsibility is still mine even though I’ve outsourced it some ways to a logistics company or freight forwarder, it’s still my responsibility?

Murdo:

Totally and absolutely.

Abdul:

If anything goes wrong can I just lean on the freight forwarders and logistics companies to sort it out for me?

Murdo:
That’s most unlikely unless you could prove that they were wholly negligent in the occurrence that gave rise to the event. Other than that the responsibility is the seller’s/ exporter’s, no doubt about that.

Abdul:

Let’s move on to the next part, which was about insurance. We looked at the other Incoterms and insurance was covered into that. Does DDP have an element of insurance? Is it a mandatory requirement?

Murdo:

No, insurance is never a mandatory requirement. Now in this instance with DDP, since the seller is at risk from A to B, it is up to the seller to determine whether they want to protect themselves from misadventure. It is a decision the seller makes at a management level. It would probably be prudent to think that some form of insurance would be taken out but that would be a management decision.

Abdul:

So if I use a freight forwarder and I tell them I have to deliver under the Incoterm of DDP, would the freight forwarded ask me if I have any insurance in place or would they organise the insurance for me?

Murdo:

Yes of course, if requested to do so the freight forwarder would most certainly arrange insurance for you. Would the freight forwarder diligently inquire as to whether insurance was part of your requirements? Possibly, it depends on the level of customer relationship that the freight forwarder wants to adopt.

Good freight forwarders would undoubtedly ask the question, if only to alert you to the fact that insurance might be something you should be thinking about, whether you conduct it through their services or privately through your own insurance broker. Yes a good freight forwarder would probably address the issue with you without putting any pressure on you to engage in insurance.

Abdul:

Now just in recap then on DDP, the big caveat on DDP is that if you’re the seller and you’re going to use DDP as an Incoterm you better be very good at knowing what it takes to get the goods from your country to the country of destination and then into the hands of the buyer.

Murdo:

Yes, whilst under whatever Incoterm is used, a good exporter/ seller would take it upon themselves to make sure that their product was fit for purpose in the destination market that they were considering. By fit for purpose I mean that all relevant issues as applicable in the destination market to the product had been considered. Now with DDP this is most emphatically indeed the case and this time if something falls through due to lack of due diligence I’m afraid the seller is the one who is going to pick up the tab.

Abdul:

Right, so tread carefully.

Murdo:

Tread carefully with this one.

Geoff:

I hope you enjoyed this audio. If you’d like more information on international trade go to www.edgectp.com. All material in this audio is copyrighted and all reproduction rights reserved by Morgan Goodwin Ltd, thank you.

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