Most commercial activities are carried out according to the Incoterms rules. Thanks to them, it is much easier for entrepreneurs to understand each other. That is why it is worth navigating the terms of delivery in order to know exactly your area of responsibility under the contract.
DAP: delivery terms in simple words
DAP is an agreement according to which the seller delivers the goods to the agreed place, and then the buyer unloads and arranges for import. Roughly speaking, the cargo has arrived – then the buyer’s responsibility. That is why DAP is translated as “delivery to the place of destination”.
What the seller is obliged to do according to DAP:
- manufacture the goods and prepare them for transportation;
- pack and label the products;
- organize logistics to the agreed place of destination (this can be anything – a warehouse, terminal, construction site, etc.);
- arrange for export.
What the buyer is obliged to do according to DAP:
- accept the goods at the place of destination, unload;
- arrange for import;
- performs further arrangements for the goods – continued transportation, warehousing, etc.
Incoterms DAP is a universal method, as it is suitable for any type of transport. However, it is most often used for road transport and shipping containers.
DDP: what is turnkey delivery
DDP is a type of delivery in which the seller assumes maximum obligations for transportation. He delivers the goods “to the door” of the client, with fully organized logistics and taxes paid. That is why DDP is translated as “delivery with payment of duties”.
What the seller is obliged to do under the terms of DDP:
- manufacture the goods and prepare them for transportation;
- pack and label the products;
- organize all logistics to the agreed place of delivery;
- arrange import and export;
- deliver the goods to the agreed destination.
What the buyer is obliged to do under the terms of DDP:
- accept the goods;
- unload (unless otherwise provided for by the contract);
- pay for the cost of the product.
It is obvious that DDP Incoterms 2020 is the most profitable option for the buyer, but energy-consuming and responsible for the buyer.
DAP vs DDP: Key Differences in Liability (Table)
Table of key differences between DAP and DDP terms:
| Criteria | DAP | DDP |
| Moment of risk transfer | goods delivered to the agreed place of destination, but not yet unloaded | goods delivered to the agreed place of destination |
| Buyer’s liability | medium | minimum |
| Tax risks for the seller | low | medium |
| Convenience for the buyer | medium | maximum |
| Who arranges the export | seller | seller |
| Who arranges the import | buyer | seller |
| Who controls the logistics | seller (to the DAP point) | seller (completely) |
| Further delivery (after the point specified in DAP and DDP) | seller | not required |
According to the comparison, DDP can be called “all-inclusive” for the seller.
Who pays duties and taxes: the main difference between DAP and DDP
The main difference between DDP and DAP is precisely the topic of paying duties and taxes.
Key points regarding the payment of duties and taxes:
- with DAP delivery, the buyer pays import duties, VAT and customs duties;
- with DAP delivery, the seller is not obliged to clear the goods in the buyer’s country and pay any import taxes;
- with DDP delivery, the seller pays import duties, VAT, taxes and customs duties;
- with DDP delivery, the buyer receives the goods fully cleared of customs.
DDP delivery can be problematic for the seller if he does not have the right to pay VAT in the country of import or does not use the services of a local broker. In such cases, it is better to choose DAP and entrust the buyer with the import.
Where costs are most often “caught”: typical errors in DAP/DDP
When delivering DDP and DAP, carriers and entrepreneurs sometimes make mistakes. However, they can be calculated in advance, because errors are mostly similar between business players.
What errors occur under DAP conditions:
- blurred place of delivery, without a city and address (for example: DAP, Ukraine);
- the buyer or seller confuses DAP and DDP, therefore does not calculate customs payments;
- there is downtime, and the contract does not specify who pays for it;
- there is no understanding of who is responsible for unloading.
The main ways to avoid problems with DAP are to clearly specify the place of delivery and calculate all possible cost scenarios.
What are the risks for DDP-Ukraine:
- delays during transportation, especially on the last mile;
- problems with tax refunds, VAT, etc.;
- profitability of the contract – because there are also costs for logistics, customs clearance, etc.;
- with repeated DDP deliveries, the risks for inspections and additional tax assessments increase;
- taxes are calculated in local currency, so the delivery becomes unprofitable due to the exchange rate difference;
- some goods require additional certifications and permits, excisable products also require greater control.
First of all, it is critical for DDP to check the seller’s ability to legally pay VAT. After all, DDP generally carries tax risks for the seller in the form of unexpected duties and additional charges.
How to correctly specify DAP/DDP in the contract and invoice
Sample of correct wording for terms of DDP: DDP, buyer’s warehouse, Kharkiv, Incoterms 2020.
Sample of correct wording for DAP terms: DAP, buyer’s warehouse, Lviv, Incoterms 2020.
It is important to specify the latest edition of Incoterms, because the partner can also work under Incoterms 2010. In general, it is recommended to pay attention to the delivery terms in the contract, because the wording is critically important. For example, if it does not contain a specific place of delivery, this is a gross mistake.
When to choose DAP and when DDP: practical scenarios
Incoterms DAP is most beneficial in cases where the seller is able to skillfully perform logistics, and the buyer has experience with customs formalities. For example, has his own broker who knows the customs rules perfectly.
Since DDP is a “door-to-door” delivery, if this type of transportation is not essential, you can choose DAP and deliver to the port, customs terminal, or logistics hub.
DDP delivery is suitable for the following cases:
- the buyer seeks to receive a “turnkey” service, and the seller is able to deliver the goods in this way;
- marketplaces, e-commerce;
- tenders;
- strategic customers who value service and speed of delivery;
- mass regular deliveries of the same goods;
- the seller has VAT registration;
- the seller has a wide network, such as a branch or local representatives.
DDP delivery terms should be chosen by businesses for which it is realistic to close tax and customs issues. Or it is easier and more profitable to delegate everything to a logistics company.
A transport and logistics company is a reliable partner, without which DAP/DDP often becomes impossible. If for DAP deliveries the criticality of the role of the logistician is above average, then for DDP it is very high.
How does a logistics company facilitate DAP and DDP for the client:
- organizes transportation to the DAP/DDP point;
- prepares customs documents (export/import);
- calculates duties, VAT, fees;
- helps to avoid downtime and delays;
- takes on most of the risks and neutralizes them;
- develops the optimal route;
- coordinates timings and deadlines.
Cooperation with logisticians is insurance against “surprises”, cheaper routes and a guarantee of successful transportation. If uninterrupted deliveries and satisfied customers are important to you – contact a professional logistics team!
