Delivery duty paid (DDP) shipping is a type of delivery where the seller takes responsibility for all risk and fees of shipping goods until they reach their destination. Mainly used for international shipping, DDP is a common shipping method developed by the International Chamber of Commerce which helps to standardize shipping options throughout the world.
Many companies will only use DDP when shipping goods by air or sea freight. Buyers benefit heavily from DDP because they assume less risk, liability, and costs. Although DDP is a good deal for the buyer, it may be a big burden for the seller because it can quickly reduce profits if handled incorrectly.
Due to the complex rules associated with international shipping and each country having its own set of rules and laws for customs exports, DDP is best for high-value items (i.e., an average order value of greater than $30).
DDP vs. DDU
The difference between DDP and delivery duty unpaid (DDU) is that DDU requires the end consumer or person receiving the package to pay the duties incurred once the package enters the destination country.
With DDU, customs will contact the customer once their package arrives, and the customer may even have to go to the local post office to pick it up. Too often, the customer doesn’t realize their order was DDU and will contact the merchant’s customer support line, cancel the order, or refuse to get it and return it to the sender.
DDP is considered the better customer experience, as it is a cross-border option that takes all fees into consideration upfront, allowing the merchant to still choose whether they pass those fees to the customer by increasing the product price or simply eat those costs.
Why is DDP used?
DDP is an international shipping standard designed to protect buyers. With DDP, buyers aren’t liable for the actual product costs and taxes, so it makes them more likely to purchase products without fear of being scammed or having to pay high taxes. Here are the top four reasons why DDP is used:
1. To protect the buyer
DDP helps the buyers not get swindled. Since the seller assumes all the risk and cost of shipping products, it’s in their best interest to make sure customers actually receive what they ordered. The time and cost associated with DDP shipping are too big of a burden for scammers to even consider using it.
2. To ensure safe delivery across countries
So much can go wrong when shipping packages halfway around the world. Every country has its own laws regarding transport, import duties and shipping fees. DDP makes the seller become diligent on only sending packages on the best and safest routes.
3. To ensure safe delivery by air or sea freight
Depending on the type of product and where it’s sold, safe delivery by air or sea can be difficult. This ensures sellers don’t take the money and run.
4. To hold sellers responsible for international fees
If a buyer has to pay customs fees, there’s a chance the sale won’t happen because they don’t know the cost of these fees. With sellers paying international fees, DDP allows for a smoother purchasing experience because the buyer doesn’t have to worry about paying the fees.
The DDP timeline
DDP follows a simple timeline. The seller retains most of the liabilities until the products arrive to the buyer. There are four major steps involved.
1. Seller drops off the package with a carrier — seller liability
The seller will drop off the package with a trusted carrier, or the carrier might pick it up. Sellers are incentivized to use trusted carriers because it reduces the overall cost of shipping.
2. The package is shipped to its destination — seller liability
Packages can be shipped via any method of transportation including ships, planes, and vehicles. With a trusted shipping partner, the seller incurs less risk and can be certain the package is actually delivered.
3. The package arrives at the destination and is charged Value Added Tax (VAT) — seller liability
One of the benefits of DDP shipping is the buyer doesn’t have to pay VAT. The takes on the cost of the VAT for the shipment.
4. The package is dropped off at a named destination — liability transfers to the buyer
Once the package arrives, the buyer is now responsible for the actual product. For D2C companies, this is when you can expect to hear from the customer if there are any issues with the delivery.
Sellers beware: DDP fees
Though DDP is a popular option for sellers, it comes with a high amount of fees. To determine if DDP shipping is right for your business, calculate the fees you’ll have to pay and if you’ll make profits from your sales.
Sellers assume responsibility for ALL these fees:
1. Shipping fees
Shipping products via sea or air can be expensive. You’ll want to take the time to calculate how much it will be to ship products internationally. Click here for rate calculators provided by different carriers.
2. Import and export custom duties
If DDP is handled poorly, inbound shipments are likely to be examined by customs, which causes delays. Late shipments may also occur if you end up choosing a less reliable transportation service because its the cheapest option.
3. Damage fees
Any damage incurred to products is a cost paid for by the seller. As the seller, you will have to pay for any damage done to the products, and even have to ship them again to their destination.
4. Shipping insurance
Although shipping insurance is not obligatory, most sellers prefer to purchase insurance to lower risk.
DDP assigns the seller the responsibility of paying the VAT. However, it is possible to change with the consent of the buyer and seller. The VAT can be expensive, sometimes 15-20% of the value of the goods plus duty. In many cases and depending on what they do with the goods, the buyer may be eligible for a VAT refund. VAT refunds accrue to the buyer. This means that, at best, you have to absorb the VAT; at worst, you absorb the VAT while your customer gets a VAT refund.
6. Storage and Demurrage
Under DDP, the seller must absorb the costs associated with customs clearance. This includes any storage or demurrage charges incurred due to delays by customs authorities, other government agencies, delivery drivers, and air/ocean carriers. Since these are unanticipated costs, they can quickly eat into your profits or completely negate them.
DDP remains one of the most popular shipping options for international businesses because of its popularity with buyers. They assume less risk for the products until they’re delivered, so it’s in their best interest. However, the costs associated with DDP for sellers can make it unprofitable if there are too many issues.
If you run an ecommerce business and want to partner with a US fulfillment company that offers international shipping capabilities, get in touch with ShipBob. We offer discounted international rates and partner with companies that provide DDP services.