What it means
DDP is one of the Incoterms, the standard trade terms published by the International Chamber of Commerce. Under it, the seller delivers the goods to the named place in the buyer's country, cleared for import, with all duties and taxes paid.
Risk passes to the buyer only when the goods are ready for unloading at that place. For the buyer, DDP is the most convenient arrangement.
The price on the invoice is the price they pay, with no surprise charges at the border. This makes it attractive in consumer sales and for buyers who lack the experience or staff to clear imports.
For the seller, it is demanding. The seller must understand the destination country's customs rules, duty rates and tax obligations, and may need to register for taxes there.
Mistakes, such as undervaluing the goods or using the wrong classification code, can lead to fines and delays that the seller must bear. Pricing is the key financial task.
The seller must include freight, insurance, duty, clearance fees and a margin in the price, and must build in some contingency for changes in rates or exchange rates. Because duty is often calculated on the value of goods plus freight and insurance, the calculation must be done in the right order.
Sellers who do not wish to handle import formalities themselves often use a customs broker or a logistics company in the destination country, and quotes to customers should state how long the price remains valid. Even then, the seller stays responsible under the contract.
Careful selection of a reliable partner is therefore important. Sellers should ask for references, agree who pays if the broker makes an error, and keep copies of every customs document for audit.
In practice
Real-world examples.
Example
An online furniture seller in Poland ships a table to a customer in the UK and charges a single price that includes shipping, duties and taxes. The customer pays nothing further on delivery. The seller's finance team accrues the expected duty at the time of sale, so that profit is not overstated.
Example
A medical equipment maker sells to a hospital in a country where import procedures are complex. The hospital buys on DDP terms so that its staff do not have to manage customs clearance. The maker builds a larger fee into the price to cover the extra work and risk.
Example
A fashion brand agrees DDP terms with a large overseas retailer and prices the goods carefully. Its finance team updates the price list whenever duty rates or freight costs change. This protects the margin when costs move between quotation and delivery.
Formula
Calculation
Seller's total cost = goods cost + freight + insurance + import duty + clearance fees
Import duty = (goods cost + freight + insurance) x duty rate
A seller's goods cost $40,000. Freight is $3,000 and insurance is $500, so the duty base is $40,000 + $3,000 + $500 = $43,500. Duty at 10% is $4,350. Clearance fees are $650. Total cost = $43,500 + $4,350 + $650 = $48,500. With a 10% mark-up, the DDP price is $48,500 x 1.10 = $53,350.Case study
Seen in the real world.
Windermere Outdoor Gear is an illustrative, fictional company that began selling jackets to customers abroad on DDP terms. It quoted a single price and was pleased with the growth in orders, as customers liked knowing the final cost upfront.
Several months later, the finance manager found that duty on some products had been calculated on the goods value alone, and not on goods plus freight, so the company had been underpaying. A customs audit led to back payments of $18,000 and penalties.
Windermere is a made-up company, so the numbers are for teaching only. The manager corrected the pricing model, trained the logistics team on customs valuation and began reviewing duty calculations every quarter. She also set up a reserve for future customs adjustments, to stop one-off bills hitting profit unannounced.
Watch out
Common mistakes.
- Pricing DDP sales without including duties, taxes and clearance costs, which erodes the margin.
- Calculating duty on the goods value alone when the customs authority uses a value that includes freight and insurance.
- Assuming the seller has no risk after handing over to a courier, when under DDP the seller remains responsible until delivery.
Questions
People also ask.
What is the difference between DDP and DAP?
Under DDP the seller clears imports and pays duty and taxes, whereas under DAP the buyer does.
Why would a seller choose DDP?
It makes the offer simple and attractive to the buyer, and it can win sales against competitors whose total cost is less clear, particularly in consumer markets.
What are the main risks for the seller?
Changes in duty rates, exchange rates and freight costs, as well as errors in customs declarations, can all reduce the margin, so a contingency allowance is sensible.
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