DDP, DAP, and DAT are part of the eleven rules of trade developed by the International Chamber of Commerce (ICC) to clarify buyer-seller responsibilities in cross-border trade.

Failing to choose an incoterm or choosing an incorrect one can cause misunderstandings that result in noncompliance. 

You just closed a business deal and the seller agreed to ship the goods, so you assume they will handle the shipping fees and associated costs. 

As soon as your goods arrive, you receive an invoice asking you to pay import duties and tax that’s almost equal to the purchase price. At this point you establish that the total cost of buying and transporting those goods makes the deal financially unfeasible.

And now you are contemplating returning the goods, or accepting them at a loss.

Agreeing on an Incoterm helps avoid such situations as you are aware of the costs and risks to bear before initiating any transaction.

So how do Incoterms affect your business?

In this article, Blackthorne IT discusses DDP, DAP, and DPU to help you make an informed choice when shipping internationally. 

Let’s see what each of these Incoterms mean.

What are Incoterms?

Incoterms (International Commercial Terms) are trade rules developed by the International Chamber of Commerce (ICC) to define buyer and seller responsibilities when shipping goods.

The rules clarify:

  • Who pays for freight, import/export clearance, and goods handling
  • When the risk of loss or damage shifts from the seller to the buyer

The 2020 edition of global trade rules contains 11 Incoterms, including:

  • EXW (Ex Works)
  • FCA (Free Carrier)
  • CPT (Carriage Paid To)
  • CIP (Carriage and Insurance Paid To)
  • DAP (Delivered at Place)
  • DPU (Delivered at Place Unloaded)
  • DDP (Delivered Duty Paid)
  • FAS (Free Alongside Ship)
  • FOB (Free On Board)
  • CFR (Cost and Freight)
  • CIF (Cost, Insurance, Freight)

The first seven Incoterms apply to any form of transport, while the last four apply to sea and inland waterway transport.

Some Incoterms place more responsibilities on the seller, while others require the buyer to handle the most. This is why it’s crucial to understand the scope of your responsibilities before closing that international deal.

Let’s dive deeper into DDP, DAP, and DPU.

What Do DDP, DAP, and DPU Have in Common?

DDP, DAP, and DPU are delivery-focused rules for exporters, referred to as the Group D Incoterms. These Incoterms apply to any mode of transport. 

The seller organises and pays for transportation and bears the risk of loss or damage until the goods reach the destination named under each Incoterm. However, the scope of responsibilities between the seller and buyer differs.

Each Incoterm specifies who pays import duties and unloading costs.

So let’s see how the buyer and seller share responsibilities under each of the three trade rules.

What is DDP (Delivered Duty Paid)?

Under DDP, the seller handles most of the responsibilities for the imported goods and only hands over the goods when they are ready for unloading.

Seller Responsibilities

The seller’s responsibilities include:

  • Organising and paying for transportation of goods from origin to destination
  • Handling export clearance in the country of origin
  • Handling import clearance at the destination country
  • Paying applicable import duties and taxes
  • Bearing the risk of loss or damage until the goods are delivered at the agreed destination

Buyer Responsibilities

Once the goods are ready for unloading, the buyer is responsible for:

  • Organising and paying for unloading at the destination
  • Bearing all costs and risks associated with the goods after they have been delivered 

The buyer also assists the seller with relevant information needed for export or import customs clearance.

What is DAP (Delivered at Place)?

DAP requires the seller and buyer to agree on a destination (place) where the seller delivers the imported goods. The destination can be a port, a depot, hub, or the buyer’s premises.

The seller takes responsibility for the costs and risks involved in shipping the goods until they reach the named destination and are ready for unloading.

Seller Responsibilities

The seller is responsible for:

  • Packaging goods for export and preparing the export documentation
  • Organising transportation and settling associated costs
  • Handling export customs clearance
  • Providing any information the buyer may need for import customs clearance
  • Bearing all risks and costs for the shipment until the goods are ready for unloading at the named destination

Buyer Responsibilities

The buyer is responsible for:

  • Unloading the imported goods at the destination
  • Handling import customs clearance
  • Bearing any costs or risks associated with the goods once received at the named destination.

What is DPU (Delivered at Place Unloaded)?

DPU was previously referred to as DAT. Under DPU, the seller is responsible for the imported goods from the time they leave the country of origin until after unloading at the destination country.

It’s the only Incoterm that allows the seller to unload the goods before handing responsibility to the buyer.

Seller Responsibilities

The seller is responsible for:

  • Organising transportation of goods
  • Handling export customs clearance
  • Bearing all costs and risks associated with the transaction until the buyer receives the goods
  • Unloading the goods at the destination country

Buyer Responsibilities

The buyer’s responsibilities include:

  • Handling import customs clearance
  • Paying applicable import duties, taxes, and fees
  • Organising last-mile delivery (if needed)
  • Bearing the risks and costs associated with the goods from the time they are unloaded

Differences Between DDP, DAP, and DPU: A Quick Comparison

You now understand what each Incoterm looks like. Let’s now put together the distinct features of each one of them:

  • DDP is the only Incoterm that requires the seller to handle import customs clearance in the destination country.
  • Both DDP and DAP require the buyer to unload the goods at the destination country.
  • DPU is the only Incoterm that requires the seller to unload the goods at the destination country.
  • DPU works almost the same as DAP, except under DPU, the seller has an additional responsibility to unload the goods at the destination.

You can refer to the table below for a quick comparison of who handles what under DDP, DAP, and DPU.

How to Choose the Best Incoterm for Your Business

Now that you already know the seller and buyer responsibilities for DDP, DAP, and DPU, how do you determine the best Incoterm for your specific transaction?

The best Incoterm accounts for the financial implications, legal requirements, and operational capability of the buyer and seller.

Here are the four key considerations to make when choosing an Incoterm for your business:

Complexity of Local Regulations

Import and export requirements vary from country to country. Before you agree on an Incoterm, establish whether the party expected to handle import/export clearance is legally authorised, knowledgeable, and experienced to fulfill associated obligations.

For instance, as a seller, you may prefer DDP because you want your customer to have a seamless, do-nothing-till-it-arrives experience. However, delivering that experience depends largely on the destination country’s regulations.

If the destination country is known for unpredictable tariff adjustments, abrupt regulatory changes, or bureaucratic customs procedures, handling import clearance as a foreign seller can attract avoidable costs and delays.

In such a case, the local buyer may need to handle import customs clearance under DAP. They speak the local language, understand the clearance procedures, and are hence better positioned to resolve customs issues.

Nature of the Goods vs. Infrastructure at the Destination

You must consider the weight and type of your goods and the handling requirements for safe unloading.

For instance, if you are shipping heavy equipment to a remote construction site where the buyer lacks necessary handling equipment, you can organise and coordinate the logistics and personnel for safe unloading.

Conversely, if you deliver the same equipment to an established warehouse or factory with suitable lifting equipment and trained personnel, the buyer can unload using existing facilities. 

Relevant International Trade Experience

Has any of you previously and successfully imported into the specific destination?

You want to understand who is best positioned to handle import compliance, logistics planning, and customs clearance.

For instance, if you already manufacture and supply IT equipment to the destination country and the buyer is a first-time local distributor, you may opt for DDP. That way, you utilise your existing network and knowledge to simplify the buyer’s importing experience.

The Importer of Record Requirements

Before agreeing on an Incoterm, you must consider who acts as the importer of record. Essentially, the party clearing goods through customs at the destination country is the importer of record.

While some countries allow foreign importers to act as their own IOR, you must meet specific eligibility requirements to serve in that capacity. 

You don’t want to choose DDP as your Incoterm, only to realise a foreign importer cannot act as the IOR in the destination country when filing customs.

Do Local Regulations Override Incoterms?

Have you ever initiated a cross-border transaction that left you regretting the decision long after fulfillment? Or paid for an overseas parcel only to receive an invoice that’s double your budget?

It happens, even to the most experienced importers/exporters. Such regrets stem from an oversight or lack of transparency in choosing an Incoterm.

You may assume that a specific Incoterm works well for you and your customers, only to realise that the destination country’s regulatory requirements dictate otherwise. 

Incoterms are a straightforward way to share risks, costs, and responsibilities in any cross-border transaction.  

By learning how these trade rules work, you can ask the right questions before closing any business deal, even when you are importing/exporting for the first time. 

However, Incoterms do not replace local regulations. 

For instance, when importing/exporting from the US, the USPPI rule determines who can act as the exporter and their specific responsibilities. That means regardless of your Incoterm, the USPPI must fulfill the stipulated responsibilities.

You can execute a compliant export transaction that doesn’t meet your profit margins. But you cannot even think about profits when your goods are stuck at customs for noncompliance.

Hence, whether DDP, DAP, or DPU, compliance comes first. Before choosing an Incoterm, consider the regulatory requirements guiding the transaction.

When a Third-Party IOR Saves the Day

Looking at the responsibilities of the importer of record, you realise that compliance sits at the top throughout the international supply chain. 

The Incoterm you choose largely influences who acts as the IOR, and consequently, how they fulfill import compliance. That’s why we highlighted considering the IOR when choosing an Incoterm.

For instance, under DDP, the seller is responsible for import customs clearance. But what happens when the foreign seller is ineligible to act as the IOR? That’s when a third-party IOR comes into play.

You can appoint a third-party IOR with a local presence to act on your behalf.

With a dedicated third-party IOR, you can delegate the most challenging compliance responsibilities, including:

  • Conducting end-user and end-use due diligence 
  • Accurate classification of your items
  • Obtaining compliance documentation

And if you are looking for a hands-off import transaction, Blackthorne IOR can handle it all on your behalf. Our local offices in over 225 import destinations allow us to offer entity representation so you don’t have to set up a local office to import under DDP.

So, if you are looking for a third-party IOR who can represent you locally, you can email us at sales@blackthorneit.com or hit that call button so we can act on your behalf.