When planning to transition from domestic to international, your business will encounter decisions that will have a big impact on its operations. One of them is navigating the differences between domestic and international shipping, which involves the added complexity of Customs clearance. To ensure a smooth and seamless cross-border delivery experience, it's beneficial to consider which Incoterms will apply to your shipments and identify the options that best align with the needs of your business and customers.
So, what are incoterms?
Incoterms – or “International Commerce Terms” – are a set of standardized terms that 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, and clarify buyer and seller responsibilities for a shipment throughout its journey. This includes shipping tasks, insurance duties, and payment of duties and taxes. The most common Incoterms e-commerce merchants need to know are DDP and DDU.
What is DDP?
DDP stands for “Delivered Duty Paid.” Under this Incoterm, 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.
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.
What is DDU?
DDU stands for “Delivered Duty Unpaid.” Under this Incoterm, 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 Waybill. 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.
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.
DDP versus DDU: Choosing the best incoterm for your e-commerce business
While DDU is a more affordable option for businesses and provides the informed buyer greater control over the shipping process, the DDP shipping method is more commonly used by e-commerce businesses to create an easy delivery experience and increase customer loyalty. To help you decide which is a good fit for your business, answer these three questions:
Do you have a high shopping cart value?
Are your products custom or one-of-a-kind?
Are you planning to ship your products using faster express air shipping?
If you answered ‘yes’ to one of the above questions, then DDP should be a consideration for your business, and working with DHL Express will make the process easy.
Why e-commerce customers prefer DDP shipping
It makes shopping for overseas products easier
When it comes to receiving an international shipment, it is important to provide an easy, hassle-free experience for your customers. Having DDP (Delivered Duty Paid) available for international orders makes this possible by removing the need for the recipient to pay duties and fees, making the shipping and delivery process as simple as possible.
It gives customers peace of mind
For buyers, DDP shipping can provide a sense of security and reduce the risk of unexpected fees or delays. This can be particularly important when purchasing goods internationally, where customs fees and other charges can be difficult to anticipate.
It makes customers see your brand as reliable
When the buyer knows that the seller is fully responsible for the delivery of their order, they may be more inclined to complete a transaction and feel more confident in their decision. This in turn can increase customer loyalty and reduce the risk of cart abandonment by promising transparent pricing and a hassle-free delivery experience.
Tips for e-commerce businesses when using DDP and DDU
Now that you’ve decided what Incoterm you should use, here are some additional helpful tips to keep in mind.
Customs policies
Stay updated about 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 on your website about any extra charges to your customers.
De minimis rates
De minimis refers to the minimum value of goods that can be imported without having to pay customs duties or taxes. If the declared value is higher than the de minims amount, taxes will apply. For e-commerce businesses, knowing the de minimis value is key because it affects how much they can ship without extra costs. In DDU cases, it also influences what buyers will pay when their goods reach customs.
Transparency
When it comes to selling internationally, transparency is key. If you choose to ship DDU to international customers, be sure to clearly communicate what duties and taxes are owed early in their purchasing journey. Something as simple as being upfront about the cost of a shipment goes a long way towards building trust and reliability in the eyes of customers.
Trust Your Carrier Partner
Working with a knowledgeable global carrier partner like DHL Express makes it easier to navigate customs regulations. With decades of Customs expertise, when you ship with DHL, you have the power to reduce risks for your business and make sure goods reach customers smoothly.
Our Certified International Specialists are here to help you choose the best trade terms for your e-commerce needs.
