What is DDP Delivery Term and How Does It Work?

The DDP delivery term is highly preferred by buyers because it is extremely secure and advantageous. But does the DDP shipping method make sense for the sender?

What is the DDP delivery term, what does it cover, and how much does it cost? All the answers await you in the rest of this page!

What is the DDP Delivery Term?

The DDP delivery term is a delivery agreement made between buyers and sellers that places the transportation risks and responsibilities on the seller until the buyer receives the goods. DDP stands for Delivered Duty Paid, meaning delivered with customs clearance and entry duties paid.

Under the DDP delivery term, buyers are not responsible for the actual shipping costs. This increases their likelihood of purchasing products without the fear of being scammed or paying high taxes. The DDP payment method is used to protect the buyer and keep the sender responsible until the customer receives the product.

In summary, the DDP delivery term includes:

• Delivered Duty Paid (DDP) is a delivery agreement in which the seller assumes all responsibility for transporting the goods until they reach an agreed-upon destination.

• It is an Incoterm or a standardized contract for international shipments.

• Under DDP, the seller must arrange all shipping and related costs, including export clearance and customs documentation required to reach the destination port.

• The risks to the seller are extensive and include VAT charges, bribery, and storage costs if unexpected delays occur.

• DDP benefits the buyer because the seller assumes most of the shipping responsibility and costs.

How Does the DDP Delivery Term Work?

The DDP delivery method is a shipping contract that imposes maximum responsibility on the seller. In addition to shipping costs, the seller is obliged to arrange import clearance, tax payment, and import duty. The risk transfers to the buyer when the goods are made available to the buyer at the destination port. The buyer and seller must agree on all payment details and specify the name of the destination before finalyizing the transaction.

DDP was developed by the International Chamber of Commerce (ICC), which seeks to standardize maritime transport globally. Therefore, DDP is most commonly used in international shipping transactions. The benefits of DDP favor the buyer as they assume less responsibility and lower costs during the shipping process, which places a heavy burden on the seller.

Why is the DDP Delivery Term Used?

The reasons for using the DDP delivery term can be listed as follows:

• To protect the buyer

• To ensure safe delivery to the destination for international trade

• To ensure safe delivery via sea or air freight

• To hold sellers responsible for international fees

1. To protect the buyer

DDP shipments help ensure that buyers are not scammed. Since all risk and cost of transporting the products is the seller's responsibility, it is in the seller's best interest to ensure customers actually receive what they ordered. The time and cost associated with DDP shipping is too great a burden for fraudsters to even consider using it. 

2. To ensure safe delivery to the destination for international trade

When exporters send packages to the other side of the world, plenty of things can go wrong. Each country has its own laws regarding shipping, import duties, and transit fees. DDP ensures that the seller is diligent in shipping packages using only the best and safest routes.

3. To ensure safe delivery via sea or air freight

Depending on the product type and where it is being sold, safe delivery by air or sea can be challenging. DDP is essentially a shipping agreement that ensures sellers do not take the money and run.

4. To hold sellers responsible for international fees

If a buyer has to pay customs fees, there is a chance the sale will not go through because they do not know the cost of these fees. With sellers and shippers paying international fees, DDP provides a smoother purchasing experience since the buyer does not have to worry about paying the fees.

What Are the Buyer and Seller Obligations in DDP Delivery?

DDP follows a simple supply chain timeline. The seller retains most of the obligations until the products reach the buyer. There are four main steps involved.

1. The seller drops the package off with a carrier — seller responsibility

The seller will drop the package off with a reliable carrier, or the carrier can pick up the package. Sellers are encouraged to use reliable carriers as it reduces the overall shipping cost.

2. The package is shipped to the delivery destination — seller responsibility

Packages can be shipped by any method of transportation, including ships, planes, and vehicles. The seller takes less risk with a reliable shipping partner and can be sure that the package is actually delivered. 

3. The package arrives at the destination and Value Added Tax (VAT) is charged — seller responsibility

One of the benefits of DDP shipping is that the buyer does not have to pay VAT. The seller bears the cost of VAT for the shipment.

4. The package is dropped off at a designated destination — obligation transfers to the buyer

Once the package arrives, the buyer is now responsible for the actual product. For D2C companies, this means you can expect to hear from the customer if there are any issues with delivery. 

How are DDP Delivery Prices Calculated?

While DDP is a popular option for sellers, it comes with a high amount of fees. To determine if DDP shipping is right for your business, calculate the fees you need to pay and whether you will make a profit from your sales.

Sellers assume responsibility for all of these fees:

1. Shipping fees

Shipping products by sea or air can be expensive. You will want to take the time to calculate how much it will cost to ship products internationally.

2. Import and export customs duties

If DDP is handled poorly, incoming shipments are likely to be inspected by customs, causing delays. Late shipments can also occur if you choose a less reliable shipping service because it is the cheapest option.

3. Damage fees

Any damage to the products is a cost paid by the seller. As the seller, you will have to pay for any damage that occurs to the products and even ship them to the destination again.

4. Shipping insurance

While shipping insurance is not mandatory, most sellers choose to purchase insurance to reduce risk. 

5. VAT

DDP places the responsibility for paying VAT on the seller. However, changes can be made with the consent of the buyer and seller. VAT can be expensive, sometimes 15-20% of the value of the goods plus customs duty. 

In many cases, and depending on what they do with the goods, the buyer may be eligible for a VAT refund. VAT refunds accrue to the buyer. This means at best you have to cover the VAT; at worst, you absorb the VAT while your customer receives a VAT refund.

6. Storage and Demurrage

According to DDP, the seller must cover expenses associated with customs clearance. This includes any storage or demurrage charges incurred due to delays caused by customs authorities, other government agencies, delivery drivers, and air/ocean carriers. Since these are unexpected costs, they can quickly eat away at your profit or eliminate it completely.