What it means
DAP is one of the Incoterms, a set of standard trade terms published by the International Chamber of Commerce. These terms say who arranges and pays for transport, who carries the risk of loss or damage, and who handles customs.
Using a recognised term means buyer and seller do not have to negotiate each point from scratch. Under DAP, the seller arranges the main transport and bears the cost and risk until the goods arrive at the agreed place, such as the buyer's warehouse, and are ready for unloading.
At that point risk passes to the buyer. The seller does not unload the goods, and does not clear them through import customs.
The buyer therefore takes responsibility for import formalities, duties and taxes, which can be a large cost in some trades. A buyer who agrees to DAP should know the duty rates and the paperwork needed, and should confirm that a customs broker is ready.
Surprises at the border cause delays and storage charges, and those charges fall on the buyer. For finance, the term affects pricing and revenue recognition.
The seller's price must cover freight and insurance to the destination, and the risk transfer point may influence when revenue can be recorded. The buyer's total cost includes the price plus unloading, duty and other charges, which is often called the landed cost.
It helps to name the place precisely, since a vague description such as the buyer's city creates disputes. The place should be a specific address or terminal, and the contract should state who pays for any waiting time or storage.
DAP can be used for any mode of transport. Compared with other terms, DAP sits near the middle of the range of seller responsibility.
Under Ex Works the buyer does almost everything, under DDP the seller does almost everything, and DAP splits the work at the border. Many exporters like it because it avoids the need to register for import taxes abroad.
In practice
Real-world examples.
Example
A Turkish furniture maker sells a container of sofas to a retailer in Germany on DAP terms to the retailer's warehouse. The seller pays for the trucking and insurance, while the retailer arranges customs clearance and pays any import charges.
Example
A Canadian machinery exporter agrees DAP delivery to a factory in Mexico. The exporter prices the freight and insurance into the machine price, and the Mexican buyer handles import duties. The exporter's invoice shows the delivery cost separately, so the buyer can see the split.
Example
A US food company ships products to a distributor in the UAE on DAP terms to a named port. The distributor appoints a local agent to clear the goods and pay the duties. The food company is paid in full on the invoice terms, and the distributor recovers the duties through its resale prices.
Formula
Calculation
Buyer's landed cost = goods price + import duty + customs clearance fees + unloading costs
A buyer purchases goods for $80,000 on DAP terms. Import duty is 5%, so duty = $80,000 x 0.05 = $4,000. Customs clearance costs $1,200 and unloading costs $800. Landed cost = $80,000 + $4,000 + $1,200 + $800 = $86,000, which is 7.5% more than the invoice price ($6,000 / $80,000).Case study
Seen in the real world.
Brightfield Ceramics is an illustrative, fictional exporter that sold tiles to a buyer abroad on DAP terms. The sales team was pleased with a competitive price, but the buyer was surprised by import duty and clearance charges of $9,500 on top of the invoice.
The buyer's finance manager had not included these in the budget, and the dispute strained the relationship. Brightfield's finance director then introduced a landed cost estimate that was shared with every DAP customer before the order was confirmed.
Brightfield is a made-up company, so the numbers are for teaching only. The estimate reduced disputes because buyers knew their full cost and could plan their cash flow. Sales staff also found it easier to win orders, because the quote looked honest and complete.
Watch out
Common mistakes.
- Assuming the seller pays import duty under DAP, when the buyer is normally responsible for it.
- Using a vague destination, which leaves the point of risk transfer unclear.
- Pricing DAP sales without allowing for freight and insurance to the destination.
Questions
People also ask.
What is the difference between DAP and DDP?
Under DAP the buyer clears imports and pays duties, while under DDP the seller handles import clearance and pays the duties as well.
Who unloads the goods under DAP?
The buyer, since the seller delivers the goods ready for unloading and the risk passes at that point.
Can DAP be used for sea and air freight?
Yes, the term works for any mode of transport, including a combination of several, as long as the destination is named clearly.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%Related