DDU (Delivery Duty Unpaid) and DDP (Delivery Duty Paid) are two of the Incoterms used in the international shipping business. As a part of the shipping business, you must know about the significance of every Incoterm issued by the ICC (International Chamber of Commerce). Every term has its significance in the industry. However, the usage and efficient application of these two terms can be confusing. Which term will benefit you as an exporter? How can you differentiate between these two regulatory acronyms? Let us find the answers by understanding their importance.
Shipping Incoterms are a part of the contract that commences the trading process.
DDU (Delivery Duty Unpaid): An Old Yet Active Incoterm
DDU stands for Delivery Duty Unpaid, which implies the seller is only responsible for delivering the goods at the defined destination. It is the buyer who becomes responsible for paying the import duties and clearances. A few common facts that you need to know about DDU are:
- DDU was a part of the eighth edition of Incoterms issued by the ICC in 2010.
- In the night edition published in 2020, DDU was replaced by DAP (Delivered At Place). However, the term is still in use by numerous traders in the international markets.
- Since the ICC does not regulate the usage of the terms, exporters and importers can incorporate their preferred Incoterms as per requirements.
From a buyer’s perspective, this term gives them more authority and control over the shipping process. But if you are an exporter, you can use it as an alternative to Delivery Duty Paid (DDP) as it reduces the costs.
DDP (Delivery Duty Paid): The Present Incoterm
DDP stands for Delivery Duty Unpaid. On the contrary to DDU, this Incoterm explains the seller’s obligation to pay for all the import duties, taxes, and customs. A seller has to ensure that the goods are delivered safely to the defined destination by the importer. DDP payments include:
- All the required import duties, taxes, and costs required to deliver the freight safely.
- VAT (Value Added Tax) unless the buyer has specified otherwise.
- Import customs clearance charges.
- Any additional costs or fines incurred during the shipping process.
The Importance of DDP & DDU In The Shipping Industry
Both these shipping terms have a great significance in the shipping industry. As a part of Incoterms, these terms set regulations for both buyers and sellers. Since the international business involves two or more countries, there is likely to be a communication gap. However, Incoterms set a common ground of setting regulatory boundaries and agreeable terms between the importers and exporters. With the help of DDP and DDU, you can optimise the use of shipping contracts. You can use them to build strong business relations with international traders. Here are the responsibilities that fall under this category.
Responsibilities of Buyers & Sellers Under DDP
- Since DDP is contrary to DDU, it imposes all the costs and expense liabilities on the seller.
- The seller must arrange for import services, pay the duties, taxes, customs, and insurance costs if needed.
- The seller needs to possess an import license and gain knowledge about the customs regulations of the importing country to avoid any type of last-minute hassle.
- It is also the responsibility of the seller to draw up a sales contract, complete export packaging, paying for all the transportation and import goods. In the case of any damage or loss to the freight, he will also have to take the liability of the goods.
- The buyer is responsible only for coordinating with the seller to ensure a safe shipment. In specific cases, a buyer might propose to share the costs and liability. However, such cases must be discussed clearly before agreeing upon the contract.
Responsibilities of Buyers & Sellers Under DDU
- The seller is responsible for transporting the goods to the port of shipment or any defined destination by the importer.
- There is no obligation of the seller to obtain any kind of insurances or clearances on the goods. However, he might be reliable for the risk.
- In this case, the buyer is responsible for acquiring licenses and taking care of all the formalities. He has to pay for the customs clearance, taxes, and duties chargeable on the freight for importing the goods.
- Sellers and buyers can agree to conditions and add specific clauses to make changes to the terms of DDU. If there is any burden or costs the buyer is not comfortable with, he can discuss with the seller.
- Unlike DDP, DDU has been omitted from the latest edition of Incoterms. So, it depends upon the choice of traders to use this term.
As an integral part of the shipping industry, you must know the use of every Incoterm to use it to your benefit. You can lay clear terms and divide the responsibilities clearly to build reliable business relations. And most importantly, take the help of a leading shipping company to optimize the use of these terms!