Delivered Duty Paid (DDP)

A deal wherein the seller of goods agrees to bear all costs until the goods reach the destination mutually agreed upon in the contract

What is Delivered Duty Paid (DDP)?

The term Delivered Duty Paid (DDP) is used in international trade to describe a deal wherein the seller of goods agrees to bear all costs till the goods reach the destination mutually agreed upon in the contract. They include the cost of all transportation, any loss due to damage during transit, and the payment of customs duty, import tariffs, and other relevant charges.

 

 

The buyer must assume responsibility only for unloading the goods and transporting them from the port to the warehouse if the mutually agreed upon terminal destination is the buyer’s port. In some cases, the contract may require the seller to pay for freight from the port to the buyer’s door.

DDP is one of the incoterms published by the International Chamber of Commerce (ICC) as part of its International Commercial Terms.

 

Summary

  • The term Delivered Duty Paid (DDP) is used in international trade to describe a deal wherein the seller of goods agrees to bear all costs until the goods reach the destination mutually agreed upon in the contract. 
  • The buyer must assume responsibility only for unloading the goods and transporting them from the port to the warehouse if the mutually agreed upon terminal destination is the buyer’s port.
  • Since the seller assumes most of the risk in such contracts, all the related costs are reflected in the selling price. Therefore, the buyer needs to pay a higher price for the goods.

 

Understanding Delivered Duty Paid

For example, a buyer in New York enters into a DDP deal with a seller from London to purchase a consignment of goods. It means that the seller from London has to pay for the transportation of the goods from their storage to the London port and from the latter to New York. If the goods are damaged in any way while they are being transported, the seller will have to bear the cost as well.

Once the goods have reached the port in London, the buyer will only have to pay for the unloading of the consignment, while customs duty, import tariffs, and other local taxes will be paid by the seller. If the contract mentions the terminal destination as the port in New York, then the seller does not have to pay for additional freight. However, if the terminal destination is the buyer’s warehouse, then the seller must pay for it as well.

Since the seller assumes most of the risk in such contracts, all the costs are reflected in the selling price. Therefore, the buyer has to pay a higher price for the goods in these deals.

 

Costs Associated with International Trade

The costs associated with international trade start even before a deal is agreed upon by the buyer and the seller. The seller must bear some costs on their own regardless of the terms of the contract. They include the cost of printing product catalogs, the cost of obtaining export licenses and other related permits, and the cost of packaging. The buyer must pay for the goods purchased, naturally.

Usually, DDPs are used in cases where the supply of goods is stable and predictable. It may be due to the nature of the product, shipping procedures, or even the shipping route, which may be affected by geopolitical considerations (such as the Strait of Hormuz). Since the seller is subject to more market risks, they would prefer to use a DDP.

 

Cost Division under DDP Contracts

The terms of DDP contracts specify which cost is to be borne by which party. If the terminal destination mentioned in the contract is the buyer’s port, then the division of cost is as follows:

 

Cost Division under DDP Contracts

 

Related Readings

CFI is the official provider of the global Certified Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful:

  • Delivered at Frontier (DAF)
  • Freight on Board (FOB)
  • Negotiated Bill of Lading
  • Voyage Policy

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