Do you carry out cross-border activities and have heard of DAP Incoterms without really understanding what it means? You are in the right place!
To be successful, any international sale must be guided by rules determining the responsibilities of the seller and the buyer. Delivered at Place (DAP) is part of internationally standardized rules used in cross-border trade, known as Incoterms. Keep reading to get an overview of what Incoterms are for, and what DAP is.
What are Incoterms?
Before diving into DAP, let’s shed light on Incoterms. Incoterms is an acronym for International Commercial Terms, and they play a fundamental role in facilitating international trade. When you trade with someone on the other side of the globe, different practices and interpretations can compromise a cross-border sale. As a response, the International Chamber of Commerce (ICC) published the Incoterms rules in 1936, and they are still used worldwide today.
Since their introduction, Incoterms have been updated every 10 years to reflect the ever-changing global trade landscape. The latest edition of the Incoterms rules is Incoterms® 2020. They specify the rights and responsibilities of buyers and sellers regarding the delivery of goods, the transfer of risk, and the payment of costs associated with the transportation of goods. There are currently 11 Incoterms that can be used for international transactions.
What Incoterms should I use?
The choice of an Incoterms mainly depends on what you sell and to whom. Sellers willing to sell directly from their factory to another business will most likely opt for EXW Incoterms as it simply requires the seller to make the goods available to the buyer at the seller’s factory. From an e-commerce standpoint, however, it makes sense to opt for more buyer-friendly Incoterms.
When consumers buy a jacket online, they want the journey to be as easy as “add to cart – enter card details – done!”. If they are asked to organize the transportation or to be responsible for the risks before the package reaches their country, chances are they will immediately leave your website. Therefore, when shipping packages to consumers, it is recommended that you bear the costs and risks and arrange transportation. Two incoterms can be used in this case: DAP and DDP.
What is Delivered at Place (DAP)?
DAP stands for Delivered at Place and can be used for any mode of transport. DAP essentially means that the seller is responsible for delivering the goods to the buyer at the agreed-upon place of delivery, which may or may not be the final destination. More precisely, the seller bears the responsibility and costs for the packaging, documentation, approval for export, loading, freight charges for the international movement, and delivery at destination.
The buyer, on the other hand, must arrange and pay customs clearance, import duties, taxes, and other charges associated with receiving the goods at the final destination. If you ship your goods with DAP Incoterms, import officials will assess duties and taxes. Then the carrier will reach out to your customer and let him know that the shipment is available upon payment of import duties and taxes. If your customer did not know they had to pay these fees at the time of purchase, they may refuse the shipment.
Are DAP and DDU the same?
You may have heard of Delivered Duty Unpaid (DDU) instead of DAP started feeling confused. DAP and DDU are essentially the same, but DAP replaced DDU in the most recent edition of Incoterms. Even though DDU is not included in the latest Incoterms edition, it is still used in international trade parlance, which is why you can still hear about DDU Incoterms.
What is the difference between DAP and DDP?
DDP stands for Delivered Duty Paid. If you opt for a DDP Incoterms, you will be responsible for all costs until your customer receives the product. This includes cargo packing, shipping fees, import customs clearance, and warehousing. When sellers ship with DDP, they usually include these charges within the product’s price or the shipment fees, so the buyer partially covers the costs.
The difference between DAP and DDP lies in customs clearance. Under DAP rules, the buyer is responsible for all duties, taxes, and customs clearance fees. For DDP shipments, however, this is all handled by the seller. The seller must pay the import duties and taxes to the relevant authorities in his customer’s country, and register for EU VAT or UK VAT if applicable.
Should I choose DAP or DDP for shipments?
Each Incoterms has pros and cons for both seller and buyer. In any case, you need to make sure you have the necessary resources to ship your goods DAP or DDP because your responsibility is engaged. DDP offers the best shopping experience to your customers since you collect duties and taxes upfront and take care of customs clearance. They make one single payment including duties and taxes at checkout, and they are not surprised by any additional fees when the package arrives at customs.
On the other hand, sending a parcel in DDP can turn into a disaster if you do not master destination country rules. If you collect the wrong duties and taxes or if you do not correctly prepare the import clearance documents, chances are the package will be stuck in customs, and you may pay additional charges. That is why some retailers prefer to turn to DAP. With DAP, the seller doesn’t have to bother with customs formalities, and in some cases, it is even beneficial for a buyer who is more familiar with his own country’s import procedures.
If you choose DAP, however, you need to keep in mind that your end customers may not be informed about the full landed cost including the carrier admin charges for processing. In this case, your customers will feel they were not given the opportunity to make an informed purchase decision because they didn’t have a full overview of the costs. In addition, they may need to go to the post office to pay for the additional fees, which will result in longer delivery times and poor shopping experience overall.
No matter what Incoterms you choose, it is essential to be upfront with your customers. This is especially critical if you opt for DAP shipments. If you do not inform your customers that additional costs await them at customs, they will be badly surprised and may return the order instead of paying the costs. This is why it is recommended that you indicate to your customers the duties and taxes that they will have to pay for customs clearance.
An easy and reliable way to show duties and taxes to your customers is to use Eurora’s Duty & Tax Calculation service. It displays the applicable VAT and duty rates in real-time at checkout in any currency and supports more than 160 countries.
Whether you ship your goods with DAP or DDP rules, Eurora can help you be transparent with your customers, provide high-quality data to customs, and speed up your processes.