DDU vs. DDP: Meaning, Differences, and Comparison

The terms DDU and DDP are heard very often in international commerce. These are Incoterms defined by the International Chamber of Commerce and used for defining types of international shipping transactions. Terms like these are commonly used for the standardization of terminologies to support easy trade communications and processes amongst global trade parties.

DDU and DDP facilitate the above by defining the responsibilities of all the stakeholders involved in any trading activity like the seller, buyer, or other agents. It is crucial to understand the differences between these shipping terms for navigating shipments smoothly in the international trade landscape.

Here is a detailed comparison between DDU and DDP to help you know everything required to ship correctly.

DDU vs. DDP: Meaning

DDU, meaning Delivery Duty Unpaid, is an incoterm denoting that the import duties of a particular shipment will have to be paid by the customer/receiver upon its arrival at the destination country.

Note: In the latest publication of the ICC, Incoterms 2020, the term DDU has been replaced by DAP meaning Delivered at Place.

DDP, meaning Delivery Duty Paid, is an incoterm denoting that the duties/taxes required for import clearance of a particular shipment have been duly paid by the sender/exporter.

DDU vs. DDP: The Process

In the case of DDU, the exporter/seller is mostly responsible for only transporting the shipment to the agreed location. The customs authorities contact the customer/buyer when the shipment arrives to clear all the due customs charges. Once the shipment reaches the destination port, it becomes the responsibility of the customer including payment for clearance and transportation to the final premises of use.

In the case of DDP, the exporter/seller agrees to pay all the customs duties for the shipment at the port of destination or wherever agreed. DDP agreements usually have both the seller and buyer at clear terms on all aspects of the payment and the final location of delivery. After the shipment arrives at the destination point, the risk thereby transfers to the customer/buyer. An agent of the seller usually gets the shipment cleared at the destination port.

DDU vs. DDP: Comparison of Responsibilities

In the case of DDU,

The seller is obliged to take care of the delivery of goods and documentation required for export clearance. Speaking of cost, the seller takes care of all the charges incurred till the shipment reaches the destination country.

The buyer is obliged to take care of the import clearance documentation and pay for the goods delivered. Once the shipment arrives in the destination country, all the related risks transfer to the buyer. Speaking of cost, the buyer has to pay for import duties/taxes and transportation to the final place.

In the case of DDP,

The seller is obliged to take care of the required documentation for export clearance and delivery of the goods at the decided location. The seller has to bear all the charges incurred until the goods reach the buyer along with informing the buyer about the details necessary to obtain the goods. Most importantly, the seller also must

The buyer is mostly free of any obligation, except for receiving the goods duly. However, the buyer shall ensure to provide details like time and place of delivery, insurance details, and related documents for smooth delivery of goods to the seller.

DDU vs. DDP: Advantages

The advantages of DDU include the following:

• DDU agreements are beneficial for both sellers and buyers as they can control the shipping process for their respective parts.
• There are fewer to no legal complications involved. DDU agreements place higher control in the hands of the buyers regarding shipping costs, duties, and taxes. Similarly, the seller needs to take care of all the obligations until the shipment arrives at the specified destination.
• It provides higher transparency in the supply chain process to the buyers as they can control the import clearance process.
• The cost of shipping is relatively cheaper in DDU agreements. Both the seller and buyer can find cheaper shipping options most suitable to their needs.

The advantages of DDP include the following:

• The main benefit of the DDP agreement goes to the buyer as they stay free of liability or bear unexpected charges.
• The process of DDP is a more streamlined one as only one party (seller) has to take care of the payments and documentation.
• There are lesser risks involved in the shipment of DDP goods. This is because the one shipping agreement covers all the required documentation and the shipment handling responsibility lies with the courier service.
• DDP shipments move faster and smoother. As all the customs paperwork and clearances are done upfront, the shipping process becomes lag-free and streamlined.

DDU vs. DDP: Drawbacks

Some of the disadvantages of DDU include the following:

• There are chances of lags in DDU shipments as they have to go through customs clearance more than once.
• The DDU agreements might bring unexpected customs charges to the buyers. This can lead to parcel abandonment and a costlier return process for the seller. It also impacts the customer experience.
• DDU shipments may also get delayed depending upon the postal system and processes of the concerned destination country.

Some of the disadvantages of DDP include the following:

• In cases of unexpected shipment delay, the seller may get exposed to risks including VAT charges, storage costs, and bribes in the worst cases.
• The customs clearance process for goods differs for every country. Thereby, the seller may have to resort to costlier delivery options if the shipment fails to clear customs of the concerned destination country.
• Poorly handled DDP shipments by cheaper transportation services are more likely to get delayed.
• There are chances of sellers exhibiting false prices for the goods by including charges like liability costs, markup freight bills, etc.

DDU vs. DDP: What to Choose and When?

Choosing DDU is the right option when:

You are trying to cut some costs as the buyer/customer takes care of the customs charges payable at the delivery port. However, it is essential to convey all the applicable duties and taxes correctly and timely to the customers so there is no confusion.

You are trading internationally and shipping low-value purchases. Such purchases are simple and affordable with usually no requirement for tracking or faster delivery. These are favorable for customers too as the duties and taxes are not hefty.

Choosing DDP is the right option when:

You want to provide a superior customer experience by preventing unexpected shipment abandonment by customers, providing faster delivery, better clarity on prices, and more convenience.

You deal with big volume and value shipments and are concerned about effective tracking and visibility in the shipping journey.

Conclusion

DDU vs. DDP is a hot topic in international trade parlance. Understanding the difference between these shipping terms is critical for ensuring ease of trading internationally. It can help with successful communication of accurate landed cost of goods, higher visibility through the supply chain process, and improved customer experience.

To determine the crucial trade compliance requirements for your goods and decide whether DDU or DDP will be profitable for you, Trademo Compliance can help.

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