DAP vs DDP Incoterms: Key differences, shipping costs, and best practices

Both DAP (Delivered at Place) and DDP (Delivered Duty Paid) are valuable Incoterms that clarify who is responsible for paying import duties and customs fees. With DAP, these costs are borne by the buyer, whereas under DDP, the seller assumes responsibility. These delivery terms are essential for companies to establish clear transport and import obligations. They help streamline logistical processes, prevent unexpected costs and delays, and ultimately boost efficiency and customer satisfaction in international trade. Read on to discover whether DAP or DDP is suitable for your business.

The main differences between DAP and DDP are:

Import duties and taxes: Under DAP, the buyer covers these costs, while under DDP, they are paid by the seller.
Customs clearance: with DAP, the buyer handles customs clearance; under DDP, the seller manages this process.
Target audience: DAP suits experienced buyers with import management expertise, whereas DDP is ideal for buyers who prefer to entrust customs and transport as seller responsibilities.

What are DAP and DDP Incoterms?

DAP (Delivered at Place) and DDP (Delivered Duty Paid) are Incoterms of 2020 that place substantial responsibility on the seller (or fulfillment services-party) until delivery on destination is obtained. Both terms are part of the Incoterms framework, which increasingly assigns transport and delivery duties to the seller. However, they differ significantly from other Incoterms in the extent of responsibility allocated to both the seller and the buyer.

DAP (Delivered at Place) explained

The Incoterm DAP (Delivered at Place) means that the seller is responsible for delivering the goods to an agreed location (usually the buyer's address), with the goods ready for unloading. Under DAP, the seller covers all transport costs and bears the risk up to this destination. This implies that the seller takes responsibility for arranging export documentation, transportation, and insurance against risks during transit.

Key aspects of DAP

Costs and risks for the seller: The seller covers all transport costs, including export costs, insurance, and any charges required to bring the goods to the destination. No buyer responsibility needed here!
Risk transfer: Risk is transferred to the buyer when the goods arrive at the agreed destination, before unloading. From this point, the buyer assumes all risk.
Unloading: Unloading at arrival is the responsibility of the buyer unless otherwise agreed.
Customs formalities: The seller handles export documentation, but the buyer is responsible for importing the goods, including paying import duties and meeting any customs requirements in the destination country.

DDP (Delivered Duty Paid) explained

DDP (Delivered Duty Paid) is an Incoterm meaning that the seller is entirely responsible for delivering goods to the buyer’s agreed location, covering all transport costs and customs clearance. This means that the seller not only manages transport and insurance but also pays import taxes (UK), duties, and customs fees. DDP is often used when the buyer prefers to outsource the entire logistical and administrative process to the seller.

Key aspects of DDP

Costs and risks for the seller: The seller bears all costs and risks up to the agreed location. This includes export and import duties, customs fees, taxes, and transport costs to the buyer’s location.
Customs formalities: Under DDP, the seller is responsible for both export and import formalities. The seller must ensure that goods are importable under local regulations, including covering any import duties and taxes.
Risk transfer: Risk transfers to the buyer only when the goods reach the agreed destination, ready for unloading. Until that point, all risk remains with the seller.
Unloading: Unloading at arrival is typically the buyer’s responsibility unless explicitly agreed otherwise.

Why are DAP and DDP important for international trade?

DAP (Delivered at Place) and DDP (Delivered Duty Paid) are crucial Incoterms for companies engaged in international trade, as they reduce complexity and risk in cross-border logistics. Here are the main benefits of each:

Reduction of logistical complexity: Both DAP and DDP place transport sellers responsibility, which reduces the buyer’s logistical burden. Particularly with DDP, buyers can leave all import duties to the seller, which is especially useful when entering new markets.
Risk transfer and clarity: DAP and DDP clarify the points at which costs and risks transfer, reducing legal disputes. With DAP, risk shifts to the buyer upon arrival, while DDP guarantees full import clearance for the buyer.
Cost management: These Incoterms help companies estimate costs more accurately. DDP provides the buyer with a fixed, all-inclusive price as the seller covers all import duties. DAP offers cost control to the buyer by allowing them to handle import fees directly.
Time-aaving: By having the seller manage logistical tasks, buyers save time and can focus on their core business activities.
Access to foreign markets: DAP and DDP simplify international trade by assigning most export and import responsibilities to the seller, making it easier for buyers to trade in countries with strict customs regulations.

Why are DAP and DDP important for international trade

Obligations under DAP (Delivered at Place)

Under DAP (Delivered at Place), the seller is responsible for transporting and delivering the goods to an agreed location within the buyer’s country, such as a warehouse or distribution centre. The seller bears all costs and risks up to this point, but the buyer is responsible for customs clearance, import duties, and any additional costs following delivery. These are the key Features of DAP:

Seller’s responsibilities: Arranging and paying for transport to the agreed location; bearing risk until goods arrive.
Buyer’s responsibilities: Managing customs clearance and paying import duties and other costs post-arrival; unloading goods if required.

Suitable companies for DAP

DAP is particularly suitable for companies familiar with their country’s customs export procedures and looking to save on import costs. This applies, for example, to:

Small to medium enterprises seeking to keep transport costs low without assigning import responsibilities to the seller.
Distributors or importers experienced in customs clearance who prefer to retain control over their imports and are capable of managing the risks associated with import-related complications.
E-commerce and trade companies that regularly receive products from abroad and have an efficient procedure for handling customs and import duties.

DAP provides these companies with flexibility and control over the import process, enabling them to manage costs and determine the timing of delivery and customs clearance independently.

Obligations under DDP

Companies often choose DDP (Delivered Duty Paid) as it provides maximum convenience and certainty for the buyer, who holds no responsibility for customs clearance or import duties. This makes DDP attractive to businesses that value simplicity and predictability in their supply chain. With DDP, the seller manages and pays for everything, including transportation, customs handling, and import fees, ensuring that the buyer receives goods without surprises or additional paperwork.

Benefits of DDP for Buyers

Increased Convenience: The buyer is not burdened with import procedures or customs charges, allowing goods to be received without hassle.

Cost Certainty: DDP provides a fixed, all-inclusive price without hidden costs, simplifying budgeting and preventing unpleasant surprises.
Streamlined Logistics: The seller handles the entire process up to the final destination, allowing the buyer to focus on core activities without needing to navigate customs regulations or costs.

Suitable Companies for DDP

Businesses Lacking Customs Knowledge: Organisations with no experience in customs processes can rely on DDP to completely manage the import handling.
Retailers and E-commerce Companies: Companies that require quick and predictable deliveries without administrative hassle, such as retailers and e-commerce platforms, benefit from the simplicity of DDP.
Buyers Seeking Predictability: Businesses that value simplicity in their supply chain opt for DDP to ensure deliveries proceed without delays or unexpected costs.

Summary

DDP provides buyers with a hassle-free, fully managed delivery, making it especially appealing to companies focused on sales and distribution. By placing the full responsibility with the seller, buyers can count on a fixed price and streamlined logistics, making DDP a popular choice for customers who appreciate a straightforward and predictable supply chain.

Tips for choosing between DAP and DDP

When deciding between DAP (Delivered at Place) and DDP (Delivered Duty Paid), companies should carefully evaluate their budget, logistical experience, and customer needs. Here are some practical tips for making the right choice:

1. Assess the budget

Perform a detailed cost comparison, including all transport, customs, and potential extra fees. Opt for DAP if your budget is limited and you can efficiently manage customs costs yourself. Choose DDP if you prefer a fixed budget with no unexpected expenses.

2. Evaluate logistical experience

If your team is well-versed in the destination country’s import regulations and customs procedures, DAP can offer cost savings. If your team has less experience, DDP provides greater convenience and reduces the risk of errors and delays.

3. Understand customer expectations

Analyse your customers’ expectations. For B2B transactions where customers have customs expertise, DAP may be suitable. For B2C transactions where simplicity and customer satisfaction are crucial, DDP is likely the better option.

4. Consider the complexity of the import process

In countries with complex customs requirements, like Brazil or India, DDP can help prevent delays and additional costs by leveraging the seller’s expertise. In less complex markets, DAP may be more efficient and cost-effective.

5. Analyse delivery timing and flexibility

For businesses with strict delivery terms or a need for precise scheduling, DAP allows customs clearance to be adjusted to fit their timeline. DDP suits companies prioritising convenience and predictability.

6. Consider the scale and frequency of international shipments

Businesses with frequent international shipments aiming to standardise and optimise their import processes may benefit from DAP. For occasional or very large shipments, DDP can enhance operational efficiency by placing full responsibility with the seller.

Which Incoterm best suits your business?

The choice between DAP (Delivered at Place) and DDP (Delivered Duty Paid) depends on the allocation of costs and responsibilities, as well as your company’s specific needs and customer preferences. With DAP, the buyer handles customs costs and has control over the import process, offering cost savings and flexibility for experienced importers. DDP, however, places all customs costs and responsibilities on the seller, resulting in higher costs for the seller but a worry-free and predictable delivery for the buyer. This is particularly valuable for e-commerce and retail companies, where customer satisfaction and transparency over costs are essential.

Base your decision on the specific characteristics of your business: analyse your budget, logistical experience, and customer expectations. By conducting a cost comparison, logistical evaluation, customer research, and risk assessment, you can make a well-informed choice that aligns with operational needs and customer expectations.