What Is Delivered Duty Paid (DDP)?

Delivered duty paid (DDP) is a delivery agreement whereby the seller聽assumes聽all of the responsibility, risk, and costs聽associated with transporting goods聽until the buyer receives or聽transfers them at the destination port. This agreement includes paying for shipping costs, export and import duties, insurance, and any other expenses incurred during shipping to an agreed-upon location in the buyer's country.聽

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Delivery Duty Paid (DDP)

  • Delivered duty paid (DDP) is a delivery agreement whereby the seller assumes all responsibility of transporting the goods until they reach an agreed-upon destination.
  • The seller must arrange for all transportation and associated costs including export clearance and customs documentation required to reach the destination port.
  • The risks to the seller are broad and include VAT charges, bribery, and storage costs if unexpected delays occur.
  • A DDP benefits a buyer as the seller assumes most of the liability and costs for shipping.

Understanding Delivered Duty Paid (DDP)

Delivered duty paid (DDP) is a shipping agreement聽that places the maximum responsibility on the seller. In addition to shipping costs, the seller is obligated to arrange聽for import clearance, tax payment, and聽import duty.聽The risk transfers to the buyer once the goods are made available to the buyer at the port of destination. The buyer and seller must agree on all payment details and state the name of the place of destination before finalizing the transaction.

DDP was developed by the International Chamber of Commerce (ICC) which sought to standardize shipping globally; hence, DDP is most commonly used in international shipping transactions. The benefits of DDP lean in favor of the buyer as they assume less liability and fewer costs in the shipping process, this, therefore, places a great deal of burden on the seller.

Seller's Responsibilities

The seller arranges for transportation through a carrier of any kind and is responsible for the cost of that carrier as well as聽acquiring customs clearance in the buyer's country, including obtaining the appropriate approvals from the authorities in that country. Also, the seller may need to acquire a license for importation. However, the seller is not responsible for unloading the goods.

The seller鈥檚 responsibilities include providing the goods,聽drawing up a聽sales contract and related documents,聽export packaging,聽arranging for export clearance, satisfying all import,聽export, and customs requirements,聽and paying for all transportation costs聽including final delivery to an agreed-upon destination.

The seller must arrange for proof of delivery and pay the cost of all inspections and must alert the buyer once聽the goods are delivered to the agreed-upon location.聽In a DDP聽transaction, if the goods are damaged or lost in transit, the seller is liable for the costs.

Managing Customs

It is not always possible for the shipper to clear the goods through customs in foreign countries. Customs requirements for DDP shipments vary by country. In some countries, import clearance is complicated and lengthy,聽so it is preferable if聽the buyer, who has intimate knowledge of the process, manages this process.

If a DDP聽shipment does not clear customs, customs may ignore the fact that the shipment is DDP and delay the shipment. Depending on the customs'聽decision, this may result in the seller using different, more costly delivery methods.

Special Considerations

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; however, some experts believe that there are reasons U.S. exporters and importers should not use DDP.

U.S exporters, for example, may be subject to value-added tax (VAT) at a rate of up to 20%. Moreover, the buyer is eligible to receive a VAT refund. Exporters are also subject to unexpected storage and demurrage costs that might occur due to delays by customs, agencies, or carriers. Bribery is a risk that could bring severe consequences both with the U.S government and a foreign country.

For U.S. importers, because the seller and its forwarder are controlling the transportation, the importer has limited supply chain information. Also, a seller may pad their prices to cover the cost of liability for the DDP shipment or markup freight bills. In some cases, freight bills have been marked up by $3,000 to $7,000.

If DDP is handled poorly, inbound shipments are likely to be examined by customs, which causes delays. Late shipments may also occur because a seller may use cheaper, less reliable transportation services to reduce their costs.