When you are considering the logistics of selling/buying goods internationally, you come across several different terms.
There are two parties involved in export/import. One is the seller and the other one is the buyer. The seller and buyer both have some responsibilities, obligations, and duties.
Incoterms are internationally recognized shipment standards that all the countries agree upon. There are 11 incoterms and each one specifies the duties of the buyer and seller under it. Two such very commonly used incoterms are DDP and DDU.
1. What is DDU?
DDU means delivery duty unpaid. This is a trade term that simply means that the seller will only be responsible for ensuring the safe delivery of goods.
Once the goods are delivered to the port of destination, the responsibility of the seller will finish.
This means that the buyer/importer is responsible for getting the goods from the port of destination. This means that the buyer has to pay the import duties to ensure that the cargo is released.
2. What is DDP?
DDP stands for delivery duty paid. As the name suggests, in this incoterm, maximum responsibility is on the seller.
Not only does he/she have to pay the shipping costs, but they also need to make sure that all costs are cleared. This includes import duty, tax payment and tax clearance.
The risk and responsibility transfer to the buyer only after the goods are good to leave the destination port. This includes custom and import duty clearance.
3. What is the difference between DDU and DDP?
If you look closely at the definitions, you can easily understand the difference between the two incoterms. DDP (delivery duty paid) puts more responsibility on the seller/exporter.
In this case, the buyer is only responsible for getting the cargo from the port of destination. That is all. All the costs are incurred by the seller.
In DDU (delivery duty unpaid) it is obvious that the delivery duty is unpaid by the seller. The seller’s responsibility ends when the goods land at the port of destination safely and securely.
From here, the buyer must go ahead and clear all custom duties, taxes, and clearances are paid by the buyer.
4. Advantages of DDP
As DDP puts most of the responsibility on the seller, it builds a direct relationship between the buyer and seller. Not only does the seller pay for the shipping costs, but they also arrange for clearing all duties and taxes.
This should be decided beforehand before any sort of contract is made. Some other benefits of DDP are described below.
There is no confusion when it comes to DDP. As the seller is paying for everything, one shipping entity takes responsibility for handling all the work. In DDU, the shipping agency is just responsible for delivering the goods to the port of destination.
From there, the buyer hires another agency to do all the clearance. This can confuse.
The biggest advantage DDP offers is that there is financial transparency. As all the costs are incurred by the seller, the buyer gets a final bill.
All the costs including the shipment fee, customs duties, taxes, and costs are included in the bill. There is no chance of unexpected costs.
In DDP agreements, the liability of the cargo until the final delivery is on the seller. Sellers have contracts with shipping companies that ensure streamlined processes.
There is very little chance for goods to get lost or any mishap as one company handles everything.
Hands-on customer experience
DDP is best when you want to give a satisfactory experience to the buyer/customer. The seller does not pay from his pocket.
All the costs incurred in DPP are paid by the buyer in one final cost. The fact that the costs are not broken down into parts means convenience for the buyer.
5. Advantages of DDU
In terms of costs and responsibilities, the buyer has most of the responsibility. This also has multiple advantages. The buyer has more control over the shipment process. Some of the major advantages of DDU are explained below.
Better supply chain visibility
Once the goods enter the buyer’s destination, it is in known territory. The seller might not be as aware of the rules and regulations of the buyer’s destination as well as the importer/buyer. So, in DDU, the buyer can decide which logistics to go for.
Lesser control of the seller
For importers, having control over their cargo is important. The seller has control only till the goods are delivered safely to the destination port. Once the goods are delivered, the responsibility of the seller finishes.
Less legal complications
For a seller, DDU is a breath of fresh air. They don’t have to take on the responsibility of shipping in a different country.
Of course, the buyer knows more about his/her country than the seller does. Giving the responsibility of custom clearance, taxes and duties to the buyer make sense. They are aware of the legalities of their native country.
The buyer has greater experience when it comes to the country of destination. The seller might have a few shipping agents there that they are aware of.
There is a great probability that the seller does not know all the options. On the other hand, the buyer might be aware of cheaper options and local options too.
Chapter 2: Seller Responsibilities under DDP VS DDU?
The major difference between DDP and DDU is in the responsibilities of the seller. In DDP, the major chunk of responsibility comes from the seller. In DDU, this is not the case.
1. Seller Responsibilities under DDP
The major chunk of the responsibility of the logistics is on the seller. The seller is responsible for arranging a shipment carrier for the transportation of goods to the port of destination of the buyer.
Once the goods are delivered, the seller goes ahead and arranges for customs clearance.
This includes getting all the approvals from the destination country. If the goods require an import license for unloading, the seller needs to arrange for that too.
The drafting of the sales contract, export packaging and all the customs requirements and costs are paid by the seller.
Inspection costs and proof of delivery come under the seller. If there is any damage or loss of goods, the cost is incurred by the seller.
The duty of the seller ends when the goods are delivered to the final destination agreed upon by both parties.
2. Seller Responsibilities under DDU
The seller has limited responsibility under-delivery duty unpaid. They are responsible for providing all legal documentation upon the arrival of goods to the destination port.
From here, the risks and responsibilities are transferred over to the buyer. The buyer provides all documents and bears all the costs of import clearance.
The seller needs to make sure the goods are delivered without any harm to the buyer’s port. After that, any damage, theft or loss is the responsibility of the buyer.
The buyer needs to pay the import taxes, duties, unloading costs, customs charges and transportation costs.
Chapter 3: DDP VS DDU: Which One Should I Choose?
There is no right answer to this. The choice depends on the mutual decision of the exporter and importer. Both services are different from each other and have their advantages. These advantages have already been discussed in detail above.
In Delivery Duty Paid (DDP) the seller pays the duties, customs, sales tax, VAT and even the cost of shipping. The buyer does not have any obligation or headache of dealing with customs brokers. The customs costs are handled by the seller.
There are multiple ways in which these costs are divided between the seller and buyer. The best way that ensures financial clarity is to include all the costs in the per-unit price. If the seller is not sure, these costs can be passed on at checkout.
The biggest advantage of DDP is that there is transparency and less responsibility on the buyer. This gives a complete customer experience to the buyer.
The only disadvantage to the buyer can be that they see a higher per-unit cost.
In DDU, the seller does not have to deal with any duties and taxes. This means a lower per-unit price.
This is what you see at first. Once you add in the costs incurred by the buyer at checkout, the price is more or less the same as in DDP.
But, the immediate impression you get is that DDU is cheaper for the buyer in terms of the cost price per item given by the seller.
The key is to make sure both the buyer and sellers are on the same page while signing the contract. Whatever you select, DDP or DDU depends on what you seem right.
As a seller, you might profit from DDP with one buyer and DDU with another. It all depends on the terms and conditions and requirements of both buyers and sellers.
Chapter 4: Factors Influencing the Choice between DDP V.S DDU
Now that we have concluded that there is no definitive answer of whether DDP is better or DDU, making a decision can prove problematic.
When you are given a choice, you need to keep in mind the following three factors before coming to a final decision.
1. Do your homework well
The first thing is to do your homework well. You need to know exactly what the difference between the two terms is.
When signing a contract, understand what is included in the cost and payment. Many different scenarios can occur. Even after signing the contract, when your goods arrive, read the small print.
This will ensure you know exactly what you are paying and not paying for. If your payment is DDU, ask the seller what the cost of the excluded charges will be.
You should know how much the import duties, taxes and customs are going to cost you. If you are not sure about the customs charges and details in your country, contact a customs agent.
Research and learn about the product you are importing. Some goods are duty-free and others have very high customs duties. Be sure to know everything about the product you are buying.
2. Choose a reliable logistics partner
A good logistics partner can make or break your business. For the sellers, it is crucial to have a reliable, economical and trustworthy partner. The seller is not physically present in the country of destination.
So, the person/agency representing them there needs to be reliable. Otherwise, you can lose clients and gain a bad reputation if they are not up to the mark.
3. Talk to your customers
The seller and buyers need to be on the same page. DDP or DDU, whatever your buyer goes for, they need to know exactly what they are paying (or not paying) for. Be clear and concise. The best way is to include this information on your company’s website.
Chapter 5: FAQs About DDP VS DDU
1. Why are incoterms important?
Incoterms are international standards that define how business is done around the world. These are established by the International Chamber of Commerce.
They are standards of trade that are accepted by traders all around the world. These incoterms leave no margin for error.
There are 11 incoterms and each strictly defines the roles of the seller and buyer under them.
2. Who pays for the DDP and DDU shipments?
In DDP, the seller is responsible for paying all the shipment duties. In DDU, the buyer pays the shipment duties.
3. Is unloading included in DDP?
No, even though delivery duty paid means all the duties are paid by the seller, unloading is not the seller’s responsibility.
4. What is the fee associated with sending a DDP Shipment?
Yes, there is a fee associated with sending a DDP shipment. You need to calculate the DDP fee, brokerage fee, taxes, duties and advancement fee. These costs need to be discussed beforehand.
5. How can you include DDP and DDU in your shipment in your eCommerce store?
The rules of your business and costs need to be crystal clear. There is no point in hiding any costs or fees from the buyer.
The final cost is going to reflect any fee that is incurred. You can include both DDP and DDU on your email page for clarity
DDP seems better when you consider it from the point of view of the customer. It ensures that the delivery process is transparent, error-free and smooth.
DDU is also largely preferred by import/export companies that work with big orders.
The final decision of going with either DDP or DDU will depend largely on the business model you operate with.
You can also contact us at Ejet Sourcing to help your smooth out your export/import process.
So, message us today! We are looking forward to serving you!