Shipping internationally can be a tricky process, especially when deciding on an Incoterm to distribute the payment responsibility between the buyer and seller. There are 11 Incoterms buyers and sellers could choose from, but “DAP” and “DDP” are two Incoterms that couriers commonly used for shipments transported via air.
Knowing the difference between DAP and DDP can help you to decide the best Incoterm when shipping your goods. Before we go any further, let’s go back to basics and understand what Incoterms are.
What are Incoterms?
Incoterms refers to International Commercial Terms published by the International Chamber of Commerce (ICC) in 1936 and is regularly updated every 10 years. Incoterms function as a trade agreement to clearly state the risk and responsibility of the seller and buyer.
DAP and DDP are the two main Incoterms used for transporting goods via air. Each Incoterm differs in its distribution of risk and payment responsibility.
What is DAP?
Delivered at Place (DAP) is an Incoterm which requires the seller to pay all costs and bear any potential losses of moving goods sold to a specific location.
What is DDP?
Delivered Duty Paid (DDP) is an Incoterm which requires the seller to bear all responsibility, risk and costs associated with transporting goods until the buyer receives or transfers them at the destination port.
The Differences Between DAP and DDP
Risk and Payment Responsibility
DAP and DDP have different distributions of payment responsibility. To understand the payment responsibility clearly, let’s refer to the table below.
Regarding the transfer of risk, both DAP and DDP are named place of destination Incoterms, which means that the transfer of risk only happens once the shipment arrives at the agreed location.
Additionally, DDP requires more responsibility from the seller as they handle everything from the customs clearance, packing, labelling and transporting of the goods until they are delivered to the buyer. In contrast, DAP transfer of risk happens when the goods arrive at the destination country where the buyer needs to arrange their transportation,
Before we dive into which incoterms to use, let’s take a look at the advantages of both Incoterms.
Advantages Comparison: DAP vs. DDP
The Advantages of DAP
1. DAP provides the buyer with cost-saving shipping options
In DDP shipping, sellers typically work with specific freight forwarders and shipping partners. However, inexperienced sellers may not be aware of more affordable shipping options due to their lack of experience, potentially saving buyers money.
2. DAP shipping reduces legal complexities
Sellers may have limited knowledge of shipping regulations in a foreign country compared to the buyer. Through DAP shipping, the party more familiar with local standards can take charge to simplify the process.
3. DAP trade agreement enhances supply chain visibility
DAP services offer buyers the ability to track every step of the cargo’s journey from the moment it enters the destination country, providing more comprehensive reporting than DDP services. creates more visibility in the supply chain.
4. DAP provides buyers with greater control
International buyers seeking consistent inventory management can have full control over product transportation once it reaches the destination, enabling cost control and real-time awareness of any delays.
The Advantages of DDP
1. Consolidate all delivery logistics within a single agreement
By using DDP, you can consolidate all delivery logistics within a single agreement which you can avoid unnecessary work and have a more seamless shipping experience.
2. Reduce Shipping Risk
DDP reduces the buyer’s risk by making the seller liable for the goods until it is delivered, ensuring a streamlined freight process that lowers the chances of goods being lost or unavailable to the consumer.
3. Financial Transparency
DDP services provide financial transparency as they reveal the total cost of goods to ship is stated clearly during order placement, simplifying cargo receipt for importers who can avoid unexpected expenses.
4. Customer’s Ease of Mind
In a DDP trade agreement, customers can be completely hands-off as their goods are delivered directly to their door, eliminating concerns about customs or other shipping requirements.
DAP Vs. DDP: Which is Better for eCommerce Business
Now that you know the advantages of DAP and DDP, which is better? There is no simple answer to this. Generally, e-commerce businesses would opt for DAP to save costs and have more control over the shipping process while buyers would prefer DDP to save time and resources.
DAP lets buyers handle customs duties and taxes which could save them money. However, sellers delivering to multiple countries need to negotiate with various customs which can be troublesome.
DDP has sellers cover all delivery costs, including customs duties and taxes which saves buyers money by avoiding extra charges upon product arrival. However, sellers might incur higher expenses due to including these costs in product pricing.
All in all both DAP and DDP have their pros and cons and it is up to both the buyer and seller to compromise with each other and find a middle ground.
Parting Tips
While you may have a solid understanding of DAP and DDP Incoterms, making the right selection can still be perplexing. To guide you through the complexities of DAP and DDP, here are 3 essential tips.
Customs Policies
Monitor changes in customs policies that might result in extra expenses. If shifting responsibility to the buyer won’t significantly affect your relationship, consider using DAP shipping—otherwise, factor in these additional costs when opting for DDP.
De minimis rates
Higher taxes apply when a package's declared value exceeds the country’s de minimis threshold. This threshold is vital for e-commerce businesses, determining duty-free limits and parcel costs, and affecting what buyers pay at customs.
Prioritise Transparency
To manage DDP shipping costs, include some in product prices and inform customers that prices include partial customs fees. If on a budget, you can choose DAP but should make all costs clear to customers at checkout. Gaining their acknowledgement of extra costs is crucial, as some customers value transparency when dealing with honest sellers, even if it means paying more.
With the knowledge you've acquired about DAP and DDP, you're well-prepared to make an informed choice. If you're in doubt about the best Incoterm for your business, our team is here to help.
Register with us now and get an expert advise directly from your dedicated account manager.
