As the landscape of globalised eCommerce changes by the day, it is crucial to understand the relevant Incoterms to make the most of shipping agreements to-and-from the UK to other global markets.
You may have heard about DDP Shipping, but what is it? Concisely, it is a method where the seller takes on financial risks and liability of a shipment until the buyer takes physical possession of the goods.
Whilst this may sound off-putting to some business owners but, DDP shipping is a proven method to ensure a polished and successful delivery solution for your business, hopefully yielding increased sales and profits as well as less questionable company feedback.
The Global Marketplace – An Overview
Introduced by the International Chamber of Commerce, Delivered Duty Paid (DDP) is a shipping agreement used primarily and most often in international shipping transactions.
But what exactly is DDP shipping and why is it important to understand such an Incoterm (international commercial term)?
Particularly relevant now that Brexit is in full effect, causing customs charges and delays being distinct probabilities for transactions between the UK and the EU, read Breakwell’s easy to read, user-friendly guide on Delivered Duty Paid shipping.
What is DPP Shipping?
Simply put, DDP is an agreement between the buyer and seller that gives all of the responsibility concerning risks, costs, responsibility and tax of the transportation of goods until the buyer has received them.
Under a DDP agreement, buyers will not bear any liability in relation to shipping costs, therefore the likelihood of them completing a transaction and making a purchase is higher as they have the peace of mind of not having hidden duty fees and other taxes to pay.
How Does it Work? A Complete Timeline of DDP
- The seller hands over goods to the shipping company – the seller also incurs the costs of shipping and liability associated with it (including any insurance)
- Packaged shipped to destination – seller incurs the cost of whichever shipping method is chosen
- Goods arrive at the destination and charged VAT – the key benefit of DDP shipping is the buyer is not liable for any VAT
- Goods delivered to the buyer – transfer of liability shifts from the seller to the buyer (finally!)
DDP vs. DDU/DAP
Delivered Duty Unpaid (DDU), or Duties at Place (DAP) as it is sometimes known, is an agreement where the consumer (the buyer, usually) is required to pay any liabilities – such as import duties and fees – once the goods have arrived at the destination country.
Shortly after the goods have arrived and been processed, customs clearance will contact the buyer to inform them that the goods have a tax, charge or duty to be paid before ultimately releasing the hold on the goods to the buyer’s possession.
As well-implemented DDP alleviates most of the headaches for the customer, it is seen as the more courteous option of shipping and therefore providing better customer service.
Why You Should Use DDP
The use of the DDP shipping method has several inherent advantages over other shipping agreements:
- Consistent continental delivery – international delivery can be perilous, DDP ensures that sellers only pick the best shipping company and routes at the most cost-effective level
- Seller’s responsibility = more sales – as the seller is knowingly upfront that they will incur all costs and liabilities (through a DDP shipping arrangement) they are more likely to secure borderline sales, particularly from value-conscious customers who wish to avoid any hidden charges (particularly import duty)
- Buyer protection – DDP ensures that the buyer is not knowingly out of pocket before they receive their package. As DDP mitigates against scammers somewhat and also places liability of all fees on the end of the seller, the buyer has the peace of mind to know they are protected.
Drawbacks of DDP
Though DDP shipping has many advantages, particularly to the buyer, it does have several notable drawbacks that are residual to the shipping method:
- High shipping costs – particularly if using air or sea transit
- Damages during transit – any damages incurred by the item during transit are at the expense of the seller, including replacing the item, which leads to double the initial expense
- Shipping insurance – though not mandatory, it is courteous to provide insurance for international deliveries
- Poor DDP implementation – incompetently using DDP shipping can cause undue delay by way of needless customs inspections
- Storage and demurrage expenses – should a DDP shipped item be mistakenly held and stored by customs – usually through poor DDP implementation – any costs incurred during the period of hold is liable to the seller
Special Things to Consider
As an exporter, it must be known that DDP is far more practical to use when the cost involved in the supply chain is easily predictable and has maintained a relative amount of stability; because of this DDP is much more easily utilised by larger suppliers and exporters.
Also, if as the seller you are committed to utilising DDP arrangements for your international shipping, be aware that all will be undone if DDP is implemented poorly. As mentioned above, if DDP is managed in a sub-par manner your shipments are much more likely to be inspected and held by customs – causing frustrating delays for the customer and uncalculated storage and demurrage costs for you.
Should I Use DDP?
As with all eCommerce, whether you should rely on DDP is a relative decision.
On one hand, buyers are more likely to hit the ‘buy’ button on the storefront of international exports because they assume less risk and financial liabilities until they come into the physical possession of the package.
On the other, each issue that emerges from when the seller posts the good incurs more costs. Poor implementation of DDP, selecting poor routes or logistics companies can mount problems upon problems, eating into a seller’s profit margins.
If the drawbacks of DDP Shipping are too considerable, you may consider enlisting the assistance of a Third-Party Logistics (3PL) service, such as Breakwells, to take the responsibility of order fulfilment and inventory storage from you, so that you may diversify your resources to the growth of your business.
The experts at Breakwells, with over 50 years of haulage and logistics experience, provide market-leading 3PL services so that you can focus on what you do best. Contact us today to discuss your requirements.
What does DDP in shipping mean?
It means Delivered Duty Paid, meaning that all duties due on an international shipment should be paid at the point of shipping by the seller/exporter.
Who pays for DDP shipments?
The seller/exporter will pay any shipping and handling charges, as well as taxes, duties and charges. The buyer is responsible for the purchase price of the item and any liabilities that occur after they receive physical possession of the goods.
Is DDP shipping door to door?
Ideally, yes. Should the DDP be implemented correctly and the seller handles all charges and duties upfront, there should be no delays and the package should reach the buyer’s specified destination exactly.
Who is responsible for customs clearance under DDP?
By the very nature of the shipping agreement, the seller is responsible for any customs clearance that may arise.
Who pays custom duty in DDP?
The seller, if DDP is done correctly and transparently.
Does DDP include delivery?
Yes, it should always include the actual expense of delivery.