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DDP vs. IOR: What's the difference?

DDP vs. IOR: What's the difference?

22/10/2020 00:00:00

If you’re new to international trade, it can be challenging to tell the difference between shipping arrangements like DDP and hiring an IOR.

This article provides an in-depth analysis of both strategies to help you decide which is better for your company.

What is DDP?

Delivered Duty Paid is an international commerce term used to describe arrangements where the seller takes all the risks, responsibilities, and costs of shipping merchandise until the buyer receives or receives them at the nominated place. This agreement includes payments for shipping fees, export and import charges, insurance, and other applicable fees.

DDP makes the seller fully responsible for the shipping process.  Besides shipping costs, the seller must handle import clearance, import duty, and tax payment. The responsibility transfers to the buyer once the consignment reaches the nominated place. The buyer and vendor must consent to all payment details and clearly designate a place of destination before finishing the transaction.

DDP favors the customer since they take on less liability than the seller and cover fewer expenses during the shipping process.

Seller responsibilities under DDP

·         The seller must organize transportation through a carrier of their choice and is responsible for all shipping costs through the said carrier. 

·         The seller's obligations include providing the items requested by the customer, drafting a sales contract and other applicable documents, satisfying all export, import, and customs requirements, and paying for all transportation expenses (this includes final delivery to a pre-determined destination).

·         The seller must provide proof of delivery and cover the cost of all inspections.

·         They must also inform the buyer once the cargo arrives at the location agreed upon in the terms.

For any DDP transaction, if merchandise is lost or damaged in transit, the seller takes responsibility for compensation.

What is IOR?

The importer of record is an entity or individual responsible for ensuring import compliance. This entity also assumes responsibility for imports and takes temporary ownership of the imported merchandise.

The importer of record varies according to the terms of the shipping agreement.  Under conditions such as DDP, this task falls to the seller. That said, regardless of the situation, either party can hire an independent company to take on the IOR role. 

Note

The importer of record is the intermediary consignee, although the two entities overlap at times.  The ultimate consignee of a shipment is the entity or individual that is the end receiver of the merchandise. The consignee is the first party to take control of the goods on arrival at the destination port. While the IOR is responsible for the merchandise at the time of import, it’s the consignee that the goods are eventually shipped to 

In situations that require freight forwarding, the freight forwarder can sometimes take on the role of importer of record. However, they are not the ultimate consignee. 

Duties of the Importer of Record

The IOR must:

·         Assess import fees based on the categorization and value of the merchandise entering the country.

·         Cover all duties, taxes, and fees on imported goods.

·         Ensure that the imported merchandise has valid entry documents, including filing the U.S. Customs and Border Protection form (if the goods are entering the United States)

·         Secure any certifications, authorizations, or licensing needed for the import. Merchandise may require special licenses or permits if they are subject to regulation by bodies like the licenses EPA and FDA.

·         Abide by all state, local, and federal regulations on imported goods. The IOR should make customs declarations with the concerned countries regarding imported goods.

·         Retain all import records for a minimum of 5 years after importing into the united states.

·         Help with securing customs bond paperwork for imports.

Failure to perform any of the tasks mentioned above can have severe consequences that include harsh financial penalties, seizures, and daily fines for impounded goods. If you intend to operate as an IOR, be sure to gain a full understanding of what it takes and what needs to be done. If you're hiring a third party, ensure to relay all the details of your shipment, so nothing is missed.

Which is better?

While DDP is an excellent way to convert customers, it may not be an ideal alternative for you (the seller) as it comes with several risks.

·         For instance, exporters may be liable to value-added tax at rates as high as 20% or more.  Furthermore, the buyer is permitted a VAT refund.  Exporters may also experience unexpected storage and demurrage fees resulting from customs, carriers, and agency delays.

·         Some governments do not allow sellers to import merchandise. For instance, if you're selling goods to a customer in Japan under DDP, you'll need a Japanese legal entity.  Unlike countries with special relationships like Canada, the United States and European Union, you must ship products through a separate company.

·         If DDP is handled the wrong way, inbound shipments will likely be examined by customs authorities, leading to delays. Sometimes, late shipments may also happen if the seller chooses to use cheaper, less reliable shipping agents to minimize costs.

Since the seller incurs the most significant risk, DDP is only for advanced suppliers. If you are operating on a small budget and don’t have the experience to handle international shipping, incorporating an IOR into the transaction is a better approach.

 

A third-party Importer of Record ensures fast, reliable importation of goods. Your IOR will handle all your import transactions and help you comply with all relevant import and export regulations, so your goods are properly certified and classified.