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When Exporters Should Use the Incoterm Delivered Duty Paid (DDP)
On: December 5, 2016 | By: Roy Becker | 2 min. read
At a recent workshop on Incoterms 2010, I prepared my usual outline, using the technique of ranking the Incoterms rules from least responsibility for the seller to most responsibility for the seller.
Initially, exporters like the term with least responsibility for them, Ex Works. In laymen's terms, the seller says, "The goods are at my back door, come and get them." As the workshop develops, exporters learn that the Ex Works rule has risks, such as the potential of a diverted shipment. (See my article, Incoterms Lesson: The Danger of Using Ex Works for Your Exports.)
A diverted shipment is bad news for any exporter. That's because all U.S. exporters bear the responsibility of keeping their products from going to countries and governments that are prohibited by U.S. laws. As an exporter, you must trust the purchaser.
A Colorado Company Only Ships Delivered Duty Paid
A company in Colorado sent two employees to the workshop. They dutifully took notes but made very few, if any, comments during the class, until we got to the last Incoterm, DDP (Delivered Duty Paid). One employee said, "I don't understand why everyone doesn't use DDP."
"Sir, with that comment, I know you understand Incoterms," I responded.
The DDP rule places full responsibility on the exporter and little on the importer. The exporter must jump through all the hoops including securing transportation and insurance to the buyer's facility. This Incoterm rule also requires the seller to arrange for customs clearance on the customer's side.
Why were the terms of DDP important to this company? It seems they manufacture computer products that have the potential for misuse if the goods find their way into the wrong hands. Exporters need assurance that their products arrive at the intended destination and are only used for the purpose intended. By using the DDP rule, the seller has complete control of the shipment to its destination, which avoids the possibility of diversion to unwanted parties or countries.
Here is the official short description of the DDP Incoterm from the International Chamber of Commerce website. DDP is one of 11 rules of Incoterms 2010:
Delivered Duty Paid means that the seller delivers the goods when the goods are placed at the disposal of the buyer, cleared for import on the arriving means of transport ready for unloading at the named place of destination. The seller bears all the costs and risks involved in bringing the goods to the place of destination and has an obligation to clear the goods not only for export but also for import, to pay any duty for both export and import and to carry out all customs formalities.
About the Author: Roy Becker
Roy Becker was President of Roy Becker Seminars based in Centennial, Colorado. His company specialized in educating companies how to mitigate the financial risk of importing and exporting. Previous to starting the training company, Roy had over 30 years experience working in the international departments of several banks where he assisted many importers and exporters with the intricate banking needs associated with international trade.
Roy served as adjunct faculty in the International MBA programs at the University of Denver and University of Colorado in Denver. He conducted seminars at the World Trade Center Denver and The Center for Financial Training Western States, and was a guest lecturer at several Denver area Universities.
Roy retired in 2021.