The incoterms DDU (Duty delivery unpaid) and DDP (Duty Delivery Paid) are international shipping terms formulated by the International Chamber of Commerce (ICC). DDP and DDU incoterms terms were established to unify and streamline international shipping and commerce practices.
Are you involved in international shipping? In this article, we’ll compare DDP vs DDU to help determine which one to choose. Tips on how to communicate shipping conditions clearly are also included.
Before goods are delivered to the buyer’s destination, there are many steps a seller has to undergo. From product sourcing, packaging, warehousing, and transportation to payment of duty fees the seller have to take care of all the processes.
Knowing the cheapest shipment delivery terms does help determine the most economical shipping method to use. Before collecting your batch of goods after shipping, a delivery duty has to be paid.
What Is DDP?
Per the international commercial terms (incoterms), DDP is the short form for Delivery Duty Paid. In DPP, the seller is in control of all the fees, logistics, warehousing and customs duties until the goods are delivered to the buyers’ collection point.
In this seller-buyer arrangement, the seller is obliged to deliver goods and the corresponding invoices plus any other document used as evidence of conformity. The documents can either be in electronic form or the usual paper document.
Also included in the DDP seller obligations is offloading the goods from the cargo carrier at the point of destination. All the financial fees included before or after the signing of the agreement are catered by the seller. When one should pay and the method of payment is on the terms laid by the seller and buyer.
Other seller obligations in a DPP arrangement include:
• Checking the products or goods to ensure they arrive at the agreed destination place in the right condition. Any damage or loss should be compensated by the seller. If a loss or damage to goods occurs after delivery, the buyer bears the liability.
• The buyer is in charge of shipping processes which include documentation and seeking permits abiding by all the shipping rules.
• Arranging and contracting for carriage to the planned destination point.
Most sellers in a DPP agreement have an agent at the local destination country to facilitate payment of taxes inspection fees and duties. Because the local agents understand the formalities and procedures followed in the area of clearance, they help the seller in cargo clearance
Any expense catered by the seller is included in the buyers’ bills as an “administrative fee” making DPP more expensive.
What is DDU?
Shipping procedures and ultimately the cumulative expenses involved in DDP versus DDU are slightly different. DDU (Delivery Duty Unpaid) is an arrangement between the seller and the buyer in which the seller’s responsibilities and obligations end after the cargo imported arrives at the country’s unloading location.
The incoterm DDU has been replaced by the International Chamber of Commerce with DAP (Delivered at Place). DDU shipping terms are still the same despite the incoterms change from DDU to DPP.
In DDU arrangement the buyer is responsible for clearance of the delivered goods at the drop-off location and any other responsibility arising thereafter. Arranging for transportation to the final location and customs duties are obligations of the buyer.
Among the seller responsibilities in delivery duty unpaid (DDU) include:
• Delivering the goods to the buyer’s country
• Providing the documents, permits and licenses needed by the buyer to clear customs duties and pick up the goods.
• Pay the transport fee, loading fee and insurance costs during transportation and shipping.
Difference between DDP and DDU Terms of Delivery
The seller obligations and buyer obligations though largely the same, the delivery terms are different. Delivery terms in the two incoterms define the responsibilities in DDP versus DDU.
Here are the differences between DDP vs DDU in terms of delivery.
|DDP Terms of Delivery||DDU Terms of Delivery|
According to the contract of sale, the seller must deliver the goods at the agreed location.
1. Delivery to A pickup point
The seller is obligated to deliver goods to the buyer’s agreed pickup point or port.
2) Original documentation
The seller is required to provide all the necessary documents to the buyer upon delivery of the goods.
2. Handing over documents
Any document required to clear the goods at the point of delivery has to be given to the buyer.
3) Risks and damages
Any risk or damage to the goods that occur from the point of sale to the stated destination is compensated by the seller.
3. Transfer of risks
Once the goods have been delivered by the buyer to the agreed location, the risks and losses thereafter are paid by the buyer.
Though not mandatory, the seller is responsible for the insurance costs for the transportation of goods to the ship. But mandatory for shipping insurance transportation insurance to the agreed destination.
The seller is obligated to pay insurance costs up to the agreed destination. Transportation insurance from the point of delivery to the last destination is paid for by the buyer.
In line with DDP incoterm, the seller is obligated to pay for costs incurred during delivery, insurance costs, export and import duties and taxes. Transportation and insurance costs are also paid by the buyer.
5. Buyer and seller costs
While the seller is responsible for the transportation delivery and insurance costs to the agreed destination in delivery duty unpaid, the buyer pays for import duties and taxes, delivery costs at the final point, customs fees and labour costs.
6) Registered entity
Some situations may require the seller to register as an entity with the buyer’s country to apply for VAT/ GST (Optional rule).
6. Registration as entity
Since the seller isn’t responsible for taxes after the goods have been offloaded, he doesn’t have to be a registered entity. Because VATs must be paid during clearance, the buyer has to be a registered entity.
The obligations vested on the buyer and seller in the DDP versus DDU incoterms are based on the shipping, customs, delivery and transportation procedures and the activities therein.
DDU vs. DDP: Which is Better?
What factors should you consider in determining the best option between DDU and DDP? Whether a buyer or a seller, you’ve to be careful when signing any shipping agreement. The risks and costs involved from the time of purchase to the time goods are delivered at the buyer’s last destination determine the profits gained.
DDU shipping involves sharing of expenses and risks between the buyer and seller. Other than the shipping fee and shipping insurance costs, the two parties incur transportation, warehouse and VAT expenses.
But at whose expense are the extra costs incurred in DDP shipping terms? If the seller has to contract an agent in the buyer country to deal with the customs duties and transportation arrangements in DDP terms, the buyer has to bear the costs.
To evaluate the most suitable shipping term between DDU vs DDP, let’s look at the advantages and disadvantages of both sides.
Advantages of DDP
DDP arrangement is advantageous to both the seller and the buyer. As the seller handles all the shipping procedures, the buyer is responsible for paying taxes and tariffs which are usually included in the purchase price.
Some of the benefits of a DDP arrangement include:
• Fewer risks
Contrary to the DDU shipping, the DDP arrangement is streamlined thus minimizing loss or damage of products. Since every step involved during shipping is solely the responsibility of the seller, their processes are streamlined to reduce risks.
And because the buyer has to deliver the goods to the buyer’s door freight, warehouse and transport solutions are strictly monitored until the goods are availed to the buyer.
• Streamlined processes
There are many processes involved from order processing, packaging, shipping, and clearance to offloading at the buyer’s destination. To make the entire process well-coordinated, easy to track, and faster to accomplish, the seller formulates an east-to-carry-out strategy.
• Transparent financial process
Payment processes are simple to settle as the seller has to cater for every payment. In this delivered duty paid terms, all payments made by the buyer to the seller can be easily proven. The buyer pays for the products or goods during purchase based on their agreement terms and the seller deals with every payment without asking for any financial assistance from the buyer.
Disadvantages of DDP
• A heavy burden to the seller
It’s not possible for a seller in Singapore to understand every procedure he/she should undergo from the port of destination to the buyers’ doorstep. And the more they contract other people or agents to carry out the duties in the buyer country, the more operational costs go up.
• Buyer limitations
No matter how the goods are delayed, the buyer cannot intervene unless asked by the buyer to help the seller. Unless other terms are expressly included in the incoterm DDP, the seller chooses the cheapest methods, routes and means. This negatively impacts the buyers for he has no control.
Advantages of DDU
Is DDU better than DDP and what makes one DDU shipping term more favorable to the buyer than the seller and vice versa?
DDU is a better arrangement for both the seller and buyer. Even though they are involved at different levels, they participate in ensuring the goods arrive at the required destination.
Here are the advantages of DDU:
• Best for low-value purchases
This is the best option for low-value buyer purchases. This eliminates the anxieties that come with costly products and high insurance premiums.
• Fewer costs to the buyer
Taxes, customs, and transport fees aren’t included in the purchase price. It becomes more affordable for the buyer to buy the products first and deal with other expenses after the goods have been offloaded. DDU further eliminates the administrative fees including the purchase price.
• Less burden to the seller
The extra obligations in the DDP arrangement arising after the goods are unloaded at the port aren’t included in DDU. Sourcing agents in the buyer country and the complicated duties in a new country are the tasks of the seller.
• Buyer involvement
In most circumstances, the buyer has a good network with different clearing agents and logistics companies. Facilitating faster clearance and transportation by the buyer is made more possible in the DDU arrangement.
• More burden to the buyer
While the goods are delivered to the buyer’s doorstep in DDP, the seller’s obligations end after the goods are offloaded at the port. The burden of searching and arranging for transportation, warehousing, and visiting customs offices shits to the buyer once the goods are offloaded.
• Documentation burden
Having all the purchase and shipping documents together immediately after the goods are at the port of destination isn’t easy. The seller has to give the buyer all documents needed for the other procedures to begin.
DDP VS DDU: Which One Should I Choose?
There are many factors to consider before you choose either DDP or DDU. Some sellers will choose DDU to avoid complications in the buyer country. others have a well-established network with international logistics companies like DHL, UPS and FedEx and are happy to work on a DDP.
If you’re a new buyer with little knowledge of international shipping practices, choosing DDP shipping will be advantageous. And if you’ve got the logistical capabilities and a reliable clearing agent, DDU is cheaper.
In a situation where the seller has to be a registered entity in the buyer country, a DDU arrangement is better than a DDP arrangement. Since the situations favour the buyer more, it’s better to choose the delivered duty unpaid.
One single shipping scenario can influence one to choose DDU over DDP. Where the seller’s administration fees are perceived as high by the buyer, he has the right to choose DDU to avoid the extra costs. Suppose the seller has an added advantage and gains more with the administration fees?
Choosing between DDP vs DDU is a matter of one’s choice. Knowing where more weight falls is the determining factor.
Tips on Communicating the Shipment Conditions
As a seller, you should always try to reduce cart abandonment. Communicating your shipment conditions using an easy-to-understand template that can reduce cart abandonment rate.
To communicate shipment conditions clearly, follow the below tips:
a) Explain all shipping conditions on a page
Before buyers pay for goods, the first information they require to know is how much it will cost to ship the product. Does the buyer offer free delivery, next-day delivery, delivery period, shipping mode, and return period? To better communicate all this information, dedicate a web page to fill all your shipping conditions.
b) Optimize the website with shipping target keyword
Using a target keywords like “Free delivery” and “One-day delivery” will make buyers find your shipping conditions faster. You’ll need to use a keyword research tool to find the right keywords to incorporate in your title tags, meta descriptions, H1s, and content body.
c) Mention a few shipping conditions on the landing page
A landing page is the most visited web page. Vital shipping conditions should be written in a font and color quick to notice and easy to read. Informing the buyer when to expect goods to be delivered and shipping costs will build trust and lead to increased sales.
d) Answer shipping questions on a separate FAQ page
It’s more likely your website visitors will search for answers related to shipping conditions if you’ve not explicitly explained them on the product’s page.
It’s therefore good to set a FAQ page and answer the most critical question including shipping delays, delivery times, logistics companies, and shipping rates.
FAQs About DDP VS DDU
Who pays freight on DDP?
Under the DPP shipping terms, the seller is obligated to pay freight charges and all delivery costs to the agreed place of destination. The buyer is free of any costs and risks until the goods are unloaded at his destination.
Are DDP agreements a good idea when importing from China?
China is renowned as the source of dropshipping and wholesale products. Shipping goods from China under the DDP arrangement is a good idea because there are cheap and fast shipping methods available.
Is DDU the same as DAP?
DDU is the same as DAP. Delivery duty unpaid (DDU) was replaced in 2010 by DAP (Duties-at-place). This means the buyer is responsible for all import duties, taxes and customs clearance.
Does DDP include customs clearance?
Delivered duty paid (DDP) incoterm gives the seller all responsibilities of clearing customs fees, import duty, import clearance and shipping costs. The seller also bears damage and loss expenses.
It may sound challenging if asked to choose between DDU vs DDP as buyer or seller. Are you engaged in international shipping? Going through all the 2010 incoterms formulated by the International Chamber of Commerce is important. It will not only help understand your obligations or responsibilities but also help to choose the best option- DDU vs DDP.