Are you looking forward to selling in the global market? International shipping is a process that demands a clear understanding of the seller’s and buyer’s responsibilities.
The International Chamber of Commerce (ICC) came up with agreements (incoterms) that can help the buyer and seller agree on their responsibilities. Among the agreements are DDP, DAP, and DAT.
As a business, it is essential to understand what these incoterms mean to your business for a successful shipment of goods from source to destination.
This article discusses the meaning of DDP, DAP, and DAT, their differences and the risks, costs and tasks associated with each. You will also learn the duties and responsibilities of the seller and buyer for each agreement and the implications for your business.
Let’s dive into the details.
What is Delivered Duty Paid (DDP)?
DDP is an agreement that requires the seller to take responsibility for a shipment until it reaches the destination. This means the seller caters for all the expenses, including packaging, logistics, custom duties and taxes involved in the transaction.
The buyer only takes responsibility for the shipment at the destination port and doesn’t bear any risks or costs until the shipment reaches the agreed destination. Hence, the burden leans towards the seller in the DDP agreement.
When to use DDP
Due to the heavy weight placed on the seller, DDP incoterm is ideal where the seller is confident about the supply chain stability and the routes are predictable.
Other situations when you can opt to use DDP include:
- When the seller has a track record of successfully exporting to the buyer’s destination
- When there’s mutual trust between the seller and the buyer
When not to use DDP
- When there are potential hidden costs, DDP is unfavourable for US exporters as they are obliged to pay value-added tax (VAT), which can go up to 20% of the goods to be exported.
- Sometimes, the buyer is entitled to a VAT refund, which means a discount for the buyer while the seller absorbs the VAT.
Other circumstances that discourage the use of DDP include:
- When the seller is unaware of the cost implications for the transaction. Taxes and customs duties may vary depending on the product, value, origin, and regulations. This challenges the seller’s ability to estimate the costs involved in the transaction.
Take a look at our DDP vs IOR article to decipher how these terms can benefit your shipping arrangements.
What is Delivered At Place (DAP)?
DAP is an incoterm that holds the seller fully responsible for all the costs and risks involved in shipping a product to a named destination. Until the goods reach the named destination, the seller takes care of transportation, packaging, permits and fees involved in the transaction.
The buyer only assumes responsibility once the goods reach the named destination. The named place must be agreed upon between the buyer and the seller. It can be a port, a hub, a depot or the buyer’s premises.
Once the goods reach the destination, the buyer is responsible for clearance, unloading and transportation costs. The buyer also takes care of any import permits, customs taxes, duties and proof of payment.
When to use DAP
DAP is ideal where no custom processes are involved between the exporting and destination country. This is practical within the same custom unions.
For instance, DAP works well when shipping goods between Ireland and Greece. This is because they are both within the European customs union, and no customs duties are applicable within a customs union.
What is Delivered At Terminal (DAT)?
DAT is a shipping arrangement where the seller clears the goods for shipping from packaging and transportation until they are unloaded at the named terminal. The named terminal can be a container yard, a warehouse, a cargo terminal, or a quay.
Once goods are unloaded at the destination terminal, responsibility changes from the seller to the buyer. The buyer takes charge of moving the unloaded goods from the terminal to the final destination. Any expenses and risks involved in the transportation fall on the buyer.
Note: Contrary to DDP, goods delivered on DAT terms are yet to reach the final destination. After the seller has settled the unloading expenses, it is the buyer who clears the goods through customs, settles any fees and provides proof of payment before transporting them to the final destination.
DDP vs DAP [the difference]
DDP and DAP are similar incoterms with varying terms of shipping. Here are the key differences:
1. When shipping on DDP terms, 90% of the responsibilities fall on the seller. This includes shipping costs, associated risks and customs clearance in the exporting country and destination country.
On the other hand, DAP reduces the weight on the seller to some extent. The seller takes responsibility for goods until they reach the agreed-upon destination, after which the buyer assumes responsibility.
2. When shipping goods on DDP terms, the buyer only takes responsibility after the seller has cleared the goods of all customs risks and expenses at the destination.
However, on DAP terms, the buyer takes responsibility for goods during unloading. Hence, it’s the buyer who settles the unloading expenses, clears the goods of any customs and takes care of transportation costs.
DDP vs DAT [the difference]
There is a significant difference between DDP and DAT incoterms as outlined below:
1. Contrary to DAT, it is the responsibility of the seller to clear goods of any customs duty, fees and taxes, then settle the unloading expenses for goods shipped on DDP terms. The buyer only settles the transportation expenses to the final destination.
2. On DAT terms, the goods are shipped to a destination terminal from where the buyer should take responsibility after unloading. The responsibility includes clearing the goods for customs and clearing associated import fees and taxes.
DAT vs DAP [the difference]
There’s a thin line separating DAT and DAP incoterms regarding the delivery destination. Here are the key differences:
1. On DAT terms, goods are shipped to a destination terminal chosen by the buyer before delivering the goods.
However, the terminal destination is not the final destination. It is from the terminal destination where the buyer assumes responsibility after the seller has settled the unloading expenses at the terminal.
2. Similar to DAT, on DAP terms, goods are shipped to a destination place, agreed upon between the buyer and seller before shipping. However, the buyer takes responsibility once the goods are delivered to the destination, clears them of any customs and arranges for transportation.
The buyer is also responsible for unloading expenses on DAP terms and every other cost after unloading.
Hence, unloading expenses on DAP terms (at the destination place) fall on the buyer, while unloading expenses on DAT terms (at the terminal destination) fall on the seller.
DDP vs DAP vs DAT
With a clear understanding, it can be easier to identify the critical differences between the three incoterms (DDP, DAP, and DAT). However, since we have looked at each one of them, here are the differences we can identify from the discussion:
1. It’s only in DDP terms where the buyer is responsible for clearing goods through customs in both the exporting and destination country.
2. In both DDP and DAT terms, the seller is responsible for the unloading expenses at the destination country and destination terminal, respectively.
3. It is only in DAP terms that the buyer is responsible for the unloading expenses.
4. In both DAT and DAP, the buyer is responsible for clearing the goods through customs before transporting them to the final destination.
Ace your next exportation with Blackthorne IT
When shipping your IT equipment, it can be challenging to identify the best incoterm to move your goods to the final destination successfully.
From arranging transportation means, packaging, ensuring compliance and clearing your goods through customs to ensure successful delivery, the process can be complex. Sometimes, when successful, it can turn out to be more expensive than expected.
And it’s even worse when the goods are detained, damaged or fail to reach the intended destination.
That is why working with an expert IOR provider and exporter of record such as BlackthorneIT can ease the complexity of your shipping process. When you partner with experienced providers in the industry, not only can they ensure compliance with legal requirements but also represent you in the destination country to ensure a successful transaction. So, why not fill out our enquiry form with your details and let us start simplifying your shipping processes today?
