What is the Difference Between DDP and DAP?

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Introduction

DDP and DAP are both trade terms or more commonly known as INCOTERMS laid out in the contract of sales. It does not appear in the Bill of Lading or any other shipping documents other than possibly the Commercial Invoice. INCOTERMS are often revised every 10 years by the International Chamber of Commerce (ICC) since 1936. It even predates the invention of the shipping containers.

To state the difference, in a DDP shipment, the seller covers all logistics responsibilities, and the buyer will take delivery at a location and date that was mutually agreed upon. In a DAP shipment, the seller covers all logistics responsibility EXCEPT for Import Permit, Import License, Duty, and VAT required to clear the importing country’s custom.

DDP and DAP are just 2 of the 11 INCOTERMs maintained by ICC. Briefly speaking, both INCOTERMs lays the most risk and responsibility for transportation and customs duty payment to the seller. There are many reasons why the exporters may choose to use these two INCOTERMs, but they often come at a higher cost to the buyer which will be priced into the contract of sales.

Choosing the right INCOTERM will save you a lot of hassle regardless if you are a shipper or a consignee, as both parties can have clearly defined roles during the process of transportation. However, there are minute differences between INCOTERMs and these minute details will make or break a sales contract.

In this article post, we examine both DDP and DAP INCOTERMs and what are the differences an alphabet in the three-letter trade term means.

What is Delivery Duty Paid (DDP)?

INCOTERMs are set from the perspective of the person issuing the contract of sales, or the commercial invoice. Hence, it is unequivocally set from the view of the seller.

This is important to establish so to avoid confusion, a buyer requesting a DDP shipment does not mean that the buyer wants to arrange the shipment altogether, we have another INCOTERM for that, which is Ex-Work (EXW).

Responsibility of Seller

What you need to know is DDP casts all of the transport responsibility of transportation and duty to the seller. Moreover, a DDP shipment does not differentiate between any modes of transportation.

The responsibilities of the seller include: –

  1. All legs of transportation (Port of Loading and Port of Discharge)
  2. Custom Clearance requirements (Import/Export Permits and Licenses)
  3. Custom Duty payments
  4. Packaging/Marking/Checking

The seller has to bear all the risk pertaining to the delivery of goods to a final destination, but with an EXCEPTION that there are loss or damages incurred where the buyer fails to name either

  1. a location
  2. a specific time of delivery
  3. a sufficient time notices to the seller

Responsibility of Buyer

The responsibility of the buyer is relatively straight forward, they are only responsible for providing the necessary information to facilitate the license and permit required to import the cargo.

Insurance Coverage

Invariably speaking, since the risk of transportation is solely borne by the seller, there is no reason for the buyer to impose on the seller to buy cargo insurance. However, it is the seller’s prerogative whether they decide to mitigate the risk of transportation with marine cargo insurance.

Additional Reading: The Benefits of Marine Cargo Insurance

What is Delivery at Place (DAP)?

Responsibility of Seller

A contract of carriage which is arranged in DAP INCOTERM places the responsibility of all forms of cargo transportation on the seller.

The only point where the seller does not partake in the arrangement is the preparation of licenses and permits required for Import, and also the duty and tax incurred at the destination country.

  1. All legs of transportation (Port of Loading and Port of Discharge)
  2. Custom Clearance requirements at Exporting port only
  3. Packaging/Marking/Checking

Location of delivery

The official statement of the ICC for DAP shipment is that delivery will take place where the seller places the goods: –

“at the disposal of the buyer on the arriving means of transport ready for unloading at the agreed point, if any, at the named place of destination on the agreed date or within the agreed period.”

 In layman terms, the location of delivery must be agreed upon by the buyer, and not at the whim of the seller’s choice.

Even though the seller delivers right up to the buyer’s manufacture site or doorstep, if the buyer does not have the equipment to unload the cargo, or does not agree on the location, the seller has not met the DAP term’s obligation.

Another point of note is that if the buyer states a window of period or a given date of accepting delivery. If the seller delivers the goods before or after the agreed date, the seller technically did not fulfill the DAP term’s obligation too.

Responsibility of the buyer

Once the place of delivery and date of delivery has been agreed upon, the buyer is responsible to be ready to accept the cargo of delivery.

Any cost such as detention and demurrage from the delay of unloading the cargo is entirely at the fault of the buyer. Therefore, they are responsible for the said charges above.

The import licenses, permit and duty costs required to clear the importing country’s customs is also the responsibility of the buyer. Once the seller has duly provided the necessary documents to prepare for the aforementioned licenses and permit, it is entirely up to the buyer to make the arrangement and payments.


Comparison of both DDP and DAP

Difference Between DDP and DAP
Differences between DDP and DAP

The graphical representation above is a clear representation of the risks and responsibilities of both DDP and DAP.

Let’s sum the comparison up into one concise sentence.

In a nutshell, the difference between DDP and DAP lies in the responsibility of import permit, import license, and import duty/tax. DDP places that responsibility on the Seller whereas the DAP term places that responsibility on the buyer.

Note: The DAP INCOTERM replaces the DDU INCOTERM (Delivery Duty Unpaid).

Which one is better, DDP and DAP?

As you should have guessed, if the buyer is given the choice between the two INCOTERMs, it is definitely better, at the perspective of the buyer, that the transportation is arranged in a DDP shipment.

Conversely, if you are a seller, and can only choose between DDP and DAP incoterm, it is better for the seller to arrange the shipment with a DAP term.

A point to note is that logically speaking, the party with a better knowledge of the import requirements such as permits, licenses, and duty applicable to the product is at the best place to take on that responsibility.

Both parties want a smooth transportation process, and to ensure that the transportation runs smoothly and not pegged by unwanted delays and costs, both parties have to take into consideration not just who is responsible for the cost of transportation, but also who is more experienced in any part of the logistic leg.

Conclusion

The International Chamber of Commerce updates the INCOTERM every decade, regardless of which INCOTERM is used and whether the right terminology of INCOTERM is defined, it is important that the buyer and seller to properly list down all responsibility of the transportation and have a clear division of responsibility in order to avoid any disruption in the supply chain.

After all, no party stands to gain from withholding information from one another or making the transportation arrangement difficult for the other party.

Resources

International Chamber of Commerce

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