There’s something so satisfying about ordering dinner for delivery. True, you don’t get the nightlife hustle and bustle, and it’s more expensive than picking up an order yourself—but sometimes you’re willing to pay for convenience and avoid kitchen cleanup.
As a small business owner, you might also find yourself willing to pay more for convenience—especially when it comes to buying or selling internationally. Wanting to enter the global market is one thing, but having the bandwidth to manage transport on another continent is something else. Delivery duty paid (DDP) shipping can help. Think of it as the international trade equivalent of ordering in: It might not be the cheapest way but it outsources many of the hassles.
Here’s what DDP shipping is, how it works, and the pros and cons for ecommerce buyers and sellers.
What is DDP shipping?
Delivery duty paid (DDP) shipping is an international shipping method in which the seller assumes responsibility for all risks and costs associated with transporting a shipment to its final destination, including applicable customs duties and taxes. The seller also retains liability for the shipment until final delivery. Sellers typically offset increased costs and risk with higher product prices.
DDP shipping is one of 11 international commercial terms, or Incoterms—international trade guidelines published by the International Chamber of Commerce (ICC) to allow businesses around the world to easily recognize a standardized set of shipping rules. Incoterms can apply to international shipments by air, ocean, road, or rail, but DDP shipping agreements are most common for goods transported via sea and air freight.
How DDP shipping works
In general, here’s how the DDP shipping process works:
1. A buyer and seller agree on a transaction and select DDP shipping as the delivery method.
2. The seller prepares a sales contract, including details about goods purchased, payment terms, delivery timeline, and destination. Contracts also specify that both parties agree to DDP shipping terms.
3. The seller packages the goods, selects a shipping carrier, obtains shipping insurance, arranges transport to the carrier’s facilities, and pays all handling and shipping fees.
4. The seller handles export customs clearance, preparing export documentation, managing communications with customs authorities, and paying export customs duties and taxes.
5. Once the goods clear customs, port employees load the goods onto the shipping vessel.
6. The shipping carrier transports the shipment to the destination port.
7. The seller pays to unload the shipment and handles import customs clearance. Sellers also pay import duties and taxes and any additional costs, such as handling or storage fees.
8. The seller arranges transportation to the destination specified in the sales contract and pays delivery drivers and handlers—often through a local shipping company.
9. The shipment arrives at the agreed-upon destination and the seller provides the buyer with proof of delivery. At this point, the shipper has completed its portion of the transaction, and risk transfers to the buyer.
10. The buyer is responsible for unloading the shipment at the destination and providing the seller with evidence of having accepted proof of delivery.
Keep in mind, the official Incoterms rules are much more comprehensive, and some steps may vary depending on circumstances, unique buyer-seller agreements, and local regulations. It’s best to review the full rules with a lawyer before committing to a DDP shipping agreement.
DDP vs. DAP shipping
DDP shipping is similar to delivered-at-place (DAP) shipping—formerly known as delivered duty unpaid, or DDU. Under both delivery methods, the seller retains liability for a shipment until final delivery and pays the majority of shipping costs. The primary difference is, with DAP shipping, the buyer pays import duties, taxes, and customs clearance fees, while under a DDP agreement, the seller pays these fees.
Buyer and seller responsibilities under DDP shipping
Below is an overview of each party’s liability and obligations under a DDP delivery agreement. Of course, before signing any agreements, you should always double-check the latest Incoterms rules and have a lawyer review the terms of the deal.
Buyer’s responsibilities
DDP shipping minimizes the buyer’s responsibilities and risk exposure. The buyer covers any costs incurred after a shipment arrives and assumes liability. Here’s an overview:
- Unloading. The buyer may pay any fees associated with unloading the shipment at the final destination.
- Additional transport or storage. If the specified destination is not the buyer’s premises, the buyer arranges additional transportation and pays to move the shipment to its final destination.
Seller’s responsibilities
The seller coordinates and manages the entire shipping process and pays all associated costs. They also retain liability until the shipment arrives at its final destination. Here’s an overview of seller responsibilities:
- Export packaging. Sellers are responsible for packaging shipments for transport.
- Documentation. The seller prepares shipment documents (including customs documentation) and is responsible for obtaining proof of delivery.
- Import and export clearance. Sellers prepare documentation and manage customs clearance. Sellers are responsible for paying export and import duties and taxes and any other expenses.
- Transportation. Sellers arrange transportation and pay for shipping expenses.
- Handling. Sellers pay any loading, unloading, and handling costs except for final unloading at the specified destination.
Advantages of using DDP shipping
DDP agreements can benefit international buyers and sellers. Here’s an overview:
Reduced workload and risk for buyers
DDP shipping agreements reduce workloads for buyers. Often, all they have to do is agree to the terms of the contract, pay, and wait for your goods to arrive. This arrangement also offers predictable costs and limited risk exposure, which can improve the buyer’s ability to plan and budget. Sellers are generally liable for anything that happens to a shipment during transport. They handle any delivery delays or customs issues and cover unexpected fees.
Increased buyer satisfaction
DDP shipping minimizes administrative labor for buyers by eliminating the need to pay import and export duties and taxes, which can boost customer satisfaction and improve the seller’s reputation. A smoother purchasing experience also benefits sellers by lowering the barrier to purchase for new, inexperienced, or hesitant international customers.
Increased control for sellers
DDP shipping lets sellers work with their preferred shipping carriers and handlers. This can reduce costs and increase the likelihood of an order’s safe delivery. Sellers also control delivery timelines and decide how much to charge a buyer for the shipping process.
DDP is particularly beneficial for experienced sellers shipping goods to inexperienced buyers. It lets sellers offer a simplified customer experience and ensures buyer mistakes don’t cause shipment delays or loss.
Disadvantages of using DDP shipping
DDP shipping can also be expensive or result in slower delivery than other international shipping options. Here are three drawbacks:
Increased cost to buyer
Sellers may bundle shipping costs and merchandise value when quoting prices to customers. This makes it easy for buyers to anticipate their total financial liability, but it also obscures exactly how much of this total is for shipping versus other costs.
With DDP shipping, sellers have leeway to inflate shipping costs, and can pad shipping budgets to account for any surprise fees, such as charges levied by destination ports, customs authorities, or other government agencies. This means customers can pay high amounts for shipping and buyers can’t get a refund if the shipment costs less than expected.
Potentially slow shipping timelines
DDP shipment lets sellers offer a seamless shopping experience, but it can also encourage sellers to prioritize the pre-conversion customer experience over post-purchase customer satisfaction. DDP shipping can incentivize sellers to choose the least costly handling and shipping options to secure the sale, which can result in slower shipping or communication challenges.
Customs clearance issues
Under a DDP delivery agreement sellers arrange customs clearance and pay customs fees, including customs duties, and import and export taxes. Suppliers selling internationally are familiar with their company’s export processes, but they may not be familiar with import customs clearance processes in the buyer’s country.
DDP shipping FAQ
What factors affect DDP shipping costs?
Sellers arrange delivered duty paid (DDP) shipping and decide how much to charge a buyer. The cost of DDP shipments can vary based on origin and destination, volume and type of goods transported, shipping carrier, and season.
What does DDP mean in shipping?
DDP is short for delivery (or delivered) duty paid. It typically refers to a sea freightshipping procedure in which the seller takes responsibility for all tasks and costs—such as shipping fees, duties and taxes, and customs formalities—required to transport the goods to a destination in the buyer’s country. Sellers retain liability for shipments until customers receive them.
Why is DDP so expensive?
Under a DDP shipping agreement, the seller takes responsibility for all the costs associated with delivering cargo to a specified address in the destination country, including transportation costs, duties and taxes, customs fees, shipping insurance, and any unexpected fees. Sellers bundle these expenses along with the value of merchandise sold, but they may inflate costs to cover unexpected or hidden fees.
