Delivery Duty Paid: Does it Always Pay Off To Pay in Advance?
By now, hopefully you’re getting familiar with Incoterms® (we have a helpful overview, here) and what they mean to you as someone in the business of shipping goods internationally. So today, we’re going to take a look at DPP, or Delivery Duty Paid Incoterms®. Delivered Duty Paid (DPP, henceforth) is used in international trade to describe a transaction where the seller of the goods has agreed to pay all costs associated with getting the goods to the destination originally, mutually agreed upon in the sales contract.
These are far-reaching and include the total cost of (all) transportation, any potential losses due to damage while the goods are in transit, and the payment of all customs duties, import tariffs, and other charges. The e-commerce merchant is responsible for paying all value-added tax (VAT), duties, customs clearance costs associated with an international shipment, and passing that cost to the e-commerce customer upfront. Through the DPP stipulations, the merchants can transparently communicate any and all additional costs to the customer at checkout, at which point payment may be collected.
Why it pays to pay upfront
- DPP terms are transparent – meaning no surprise costs for the importer and a seamless exchange of goods for the buyer. International merchants and customers face a lot of challenges with e-commerce, DPP can solve, or at least alleviate them.
- It helps ease navigation upfront, preventing fees required to be paid by the customer to customs agents, which saves money, prevents lag time and overall streamlines the whole shipping process.
- DDP utilizes parcel carriers over postal services, which is typically a faster process. Carriers expedite shipping by taking into account several factors in collaboration with the e-commerce merchant. This means more control in the hands of the e-commerce merchant, while also reducing delivery times.
- Flexibility, even down to delivery options of the goods being shipped. Customers can play a more active role in delivery attempts and locations, making it a far more convenient process.
- Merchants can calculate the VAT (value-added tax) based on the destination country’s specific requirements within their technology integration. This cuts down on abandoned carts, leads to faster transit times, and more accurate delivery estimates.
- The customer has a better experience, and is more likely to buy from you again and refer you to others.
Transparency and visibility are essential for your bottom line and your peace of mind, and this is especially true for e-commerce brands during shipping. DDP provides a transparent tracking process for the U.S./Canadian brand and the international customer through user-friendly technology integrations at the shopping cart level.
On the flip side, choosing DDP as an incoterm® does have its drawbacks. There are many perks to using Delivery Duty Paid, but unknowingly relying on that could mean you pay more out of pocket than you would if you used different available options.
- While it’s generally a fair rule of thumb that DDP shipments for buyers result in less stress and risk, and for sellers, they have more control over the shipping process. But there can be situations where using DDP incoterms® leads to customs duties, delays in the supply chain and other hidden costs.
- In the present state of global supply chain volatility, it’s vital that you know as much as possible about the specifics of each shipment, and you can lose some of that control and visibility, while paying more, if you just default to choosing DDP.
- If you’re the one doing the selling, greater obligations rest on your shoulders as the seller than the minimum placed on the buyer. The seller is held accountable for delivering the goods, i.e. paying all duties, customs and taxes related to importing the goods.
There is no one size fits all answer when it comes to DDP as the advantages and disadvantages weigh differently whether one is the seller and one is the buyer.
The best thing that you can do if you’re confronted with whether or not to use the DDP is to speak with an expert customs broker who knows everything about each term, current trade situations and any and all market fluctuations that could have an impact on your bottom line. A & A customs brokers are highly informed on all things incoterms®, so give us a call today and together, let’s figure out if DDP makes sense for your shipments.