What is DDP? Delivered Duty Paid Shipping Explained
What is DDP (Delivered Duty Paid)? A Complete Guide
DDP (meaning delivered duty paid) shipping is a commonly used shipping method that assumes the seller’s responsibility for the product until the customer receives it.
As the seller bears all expenses, the buyer can benefit not only from less risk but also from fewer costs. Despite DDP being a convenient option for customers, retailers might see a loss of profits if they use DDP incorrectly. In this article, we will take a closer look at what the DDP term means.
- DDP (delivered duty paid) shipping is a delivery method where the seller is responsible for all costs and risks associated with the shipping until the parcel reaches the agreed destination.
- The main advantages of DDP are buyer protection, shipment safety, and better transparency.
- Under DDP shipment, the seller must ensure that the package is compliant with import and export requirements.
- Although DDP is beneficial to buyers, it can have potential financial drawbacks for sellers. These include shipping fees, VAT, customs clearance costs, and insurance expenses.
What is DDP shipping?
Delivered duty paid (DDP) shipping describes a delivery agreement wherein the seller agrees to bear all costs and risks associated with shipping until the goods reach the buyer in the agreed destination. Under DDP, the buyer is only responsible for receiving the parcel once it has been cleared through customs and delivered to their chosen location.
Every country has its own import regulations, rules regarding transport procedures, and international delivery fees. Because of that, numerous issues can arise when shipping packages abroad.
As DDP shifts the responsibilities associated with customs clearance and import duties from the buyer to the seller, it is commonly used for international deliveries. DDP ensures that the goods will be delivered to the buyer without any unexpected costs or delays caused by the parcel being held up in customs.
What are the seller's responsibilities under DDP?
When shipping goods using DDP, the seller must arrange and pay for transportation through a carrier. They must obtain customs clearance and get any approvals from the authorities in the destination country.
It is also the seller’s obligation to ensure that the shipment and packaging meet the relevant import and export requirements.
This means that the buyer is liable only for unloading the goods and transporting them from the agreed-upon location to their warehouse.
Advantages of using DDP
It is important for sellers to consider both the advantages and drawbacks before deciding whether to use DDP to ship goods. First, let’s take a look at the benefits:
- Buyer protection
As it is the seller who is accountable for any shipment disruptions, as well as product damages or losses, DDP takes a lot of stress away from the buyer.
Being able to guarantee that the buyers will receive what they ordered can lead to more customers purchasing goods from e-commerce businesses.
- Shipment safety
With every country having its own laws regarding shipments from abroad, transporting products to far-away locations, especially by air or sea, can be a complex process. When using DDP, sellers can be sure that their goods are being shipped via verified and safe routes.
- Better transparency
Since the seller covers all duties, taxes, and other fees associated with DDP shipment, buyers do not have to worry about any unexpected costs waiting for them upon picking up their parcel.
They can review all the fees paid by the seller, so DDP enables a transparent process, thereby improving customer satisfaction and reducing the risk of them abandoning the transaction due to not knowing the price of custom fees.
What are DDP costs?
Although DDP comes with numerous advantages, businesses must be aware of potential financial drawbacks. When using DDP shipping, they must commit to covering the following:
- Shipping fees
Transporting goods by sea or air can be costly, especially if sellers want to choose a reliable transportation service.
The seller using DDP is responsible for paying VAT that can reach 15-20% of the value of the goods. It is possible to change that in an agreement with the buyer, who might be able to get a VAT refund. But, if they do not agree, sellers must cover VAT themselves.
- Customs clearance costs
When shipping abroad with DDP, the seller must pay for customs clearance and any costs incurred in the event of delays. These fees might happen unexpectedly and can compromise their profit from selling the goods.
Purchasing insurance is not compulsory, but most sellers get it to lower risk and have some protection should the parcel get lost or damaged.
How does DDP shipment work?
Stage 1: Preparing the package
The process begins with the seller packing the goods and handing them over to a suitable carrier. Although opting for the least expensive carrier may be appealing, it is best to choose a reputable carrier to minimise delays and improve the security of the package.
Here, the seller must also prepare the sales contract and gather the necessary documents.
Stage 2: Shipping the goods
Then, packages are shipped to the destination country using ships, planes, or other vehicles.
Stage 3: Reaching the destination
Once the package arrives at the destination, the seller must pay Value Added Tax (VAT). They must also cover inspection expenses and any damage costs.
DDP vs DDU
DDP term is one of incoterms - also known as international commercial terms - that describe internationally recognised rules surrounding cross-border shipments. Along with DDP, an acronym you might often encounter is DDU. Here we will explain the difference between the terms DDP and DDU.
DDU stands for delivered duty unpaid, and the main difference between it and DDP is that the former requires the buyer to pay the costs and taxes of import clearance. After being notified by customs that their package arrived, the customer must collect it and pay the relevant fees and import tariffs.
The biggest drawback of DDU shipping is that if the customer is not aware of what DDU means, they might refuse to pay and decide to return the package to the sender. This could mean the seller not making a profit.
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In conclusion, DDP (meaning delivered duty paid) offers many benefits to customers as it is the seller who bears all the costs and risks associated with shipment.
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Frequently Asked Questions
Is DDP shipping safe?
DDP shipping is safe and offers great buyer protection as, until the parcel is delivered to the agreed location, all responsibilities fall on the sender. However, it is important to be aware of the conditions of the DDP shipment and to choose a reputable shipping company to minimise potential risks.
Who pays VAT in DDP shipment?
When a company uses DDP to ship goods abroad, the seller agrees to cover all costs that arise during the process, including VAT. The only exception is when the parties agree in the contract of sale that it is the buyer who will pay VAT or other import taxes.
Which is better: DDP or DDU?
Whether to choose DDP or DDU depends on the needs of the buyer and seller involved in the transaction.
Under DDP, the seller is responsible for all costs and risks associated with the shipment, up until the package is delivered to the customer. DDP is a favourable option for buyers as they get a clear understanding of the total price upfront, and they do not have to worry about paying any import charges. At the same time, DDP can be expensive for sellers.
DDU shipping means that the buyer must pay any import duties and taxes once the shipment reaches the specific location designated by them. DDU shipping is therefore recommended for buyers who have experience managing the import process. Additionally, it can cost sellers less than DDP.