E-commerce businesses shipping to customers cross-border will probably come across the terms “DDP” and “DDU”. Here we will explain their meaning, and which one is right for your business to ensure a smooth customer experience.
What are incoterms?
Incoterms – or “International Commerce Terms” – are a set of standardized terms to define crucial aspects of global trade. They were established by the International Chamber of Commerce (ICC) to provide uniform rules for the delivery of goods within international commerce. Incoterms clarify the buyer’s and seller’s responsibilities for a shipment throughout its journey – including shipping tasks, insurance duties, and payment of duties and taxes. Examples of common incoterms include DDP and DDU, which we will explore further below.
What is DDP?
DDP stands for “Delivered Duty Paid.” Under this trade term, the seller assumes responsibility for the shipment – including risks, transportation, loading, customs clearance fees, duties and taxes, and insurance. If the seller is working with a customs broker – like DHL Express – they will typically be billed for the costs before the goods are imported. Once they are dropped off at a named destination, liability transfers to the buyer.
This term may also be referred to as DTP – Duties and Taxes Paid.
What is DDU?
DDU stands for “Delivered Duty Unpaid.” Under this trade term, the seller is responsible for the safe delivery of goods to a named destination – typically a seaport – including loading and shipping costs. The seller must provide the buyer with the necessary documentation to receive the goods at the destination, including the shipping label. Once there, the buyer assumes all risks and responsibilities, including customs charges, duties and taxes, unloading costs, and transportation to the next destination. Customs will only release the shipment after the fees have been paid.
This term may also be referred to as DAP – Duties at Place.
DDP versus DDU: which one is best for your e-commerce business?
With DDP, your business (the seller) is responsible for:
- VAT
- Import duty
- Import clearance documentation
- Loading and unloading charges
- Transportation, including delivery to a named destination
- Shipping insurance
- Lost/damaged goods
- Builds brand trust: you can give your customers a clear, all-in-one price at checkout, without any unexpected fees further down the line.
- Your customers will receive their goods, with all customs issues and fees already covered – a convenient experience that will build loyalty to your business.
- DDP reduces the risk of delays at customs (due to customer disputes about payment of fees), so goods will reach them quicker.
- Your business will be responsible for paying customs clearance fees, duties and taxes, which will eat into your profit margin.
- You will also be liable for any storage or demurrage charges incurred due to delays by customs authorities.
- For small businesses, navigating and paying customs fees can be complex and time-consuming – even more so when shipping to customers in multiple countries.
With DDU, your customers (the buyers) are responsible for:
- VAT
- Import duty
- Import clearance documentation
- Unloading charges
- Transportation (once goods arrive at destination country)
- Shipping insurance (once goods arrive at destination country)
- Lost/damaged goods (once goods arrive at destination country)
- Without any duties and taxes to pay, you can price your products lower, incentivizing customers to choose your business.
- You can take a more “hands off” approach – the main responsibilities for the shipment belong to the buyer.
- “Unexpected shipping fees” is one of the biggest deterrents to consumers shopping cross-border1. If you fail to communicate such fees to customers early on, you risk damaging their relationship with your brand.
- If the customer is late picking up the package or fails to pay the duties, your business will be liable for covering penalties and return shipping fees.
Tips for e-commerce businesses when using DDP and DDU
Customs policies
Be aware of any changes in customs policies that may entail additional costs. If shipping DDP, you will need to factor these costs into your pricing strategy. If shipping DDU, you must be clear about any extra charges to your customers.
De minimis rates
Higher tax charges will apply if the declared value of imported goods exceeds the country’s de minimis value. Knowing this value is important for e-commerce businesses because it determines how much they can ship duty-free and how much their shipments will cost. For DDU cases, it will impact the amount buyers need to pay when their goods arrive at customs.
Transparency
If you choose to ship DDU to international customers, always be clear about shipping fees early on in their purchasing journey to maintain their trust in your brand.
DHL’s DDP service
With DHL’s DDP service, you can give your customers an all-in-one shipping price at checkout, without any unexpected costs later on – a sure way to damage their opinion of your brand. With a trusted shipping partner like DHL Express, your business will incur less risk, and you can be certain your goods will get to their destination without any delays at customs.
We know that navigating customs can be complex – especially for small businesses. That’s where partnering with an international logistics expert can help.
