In this article, Miguel Angel Bustamante Morales discusses the key differences between the Incoterms® rules, DAP and DDP.
Miguel is an ICC certified trainer on the Incoterms® 2020 rules and an active participant in the last three revisions of the Incoterms® rules: 2000, 2010, and 2020.
The views and opinions expressed in this article are those of our authors and do not necessarily reflect the official policy or position of the ICC Academy or ICC.
Incoterms® rules
The Incoterms® rules are a set of trade rules created by the International Chamber of Commerce (ICC) in 1936. The rules are reviewed and updated from time to time, with Incoterms® 2020 being the latest one.
The Incoterms® rules provide sellers and buyers or exporters and importers, international standardised trade terms that clearly define, important and relevant matters in a B2B sale of goods contract, such as the place of delivery of the goods and the transfer of risks for loss of or damage to the goods from the seller to the buyer.
Each of the eleven Incoterms® rules also provide clarity on:
- The costs that the seller and the buyer must assume
- Who, between seller and buyer, must contract the transportation of the goods, including the security requirements for their transportation
- Clarify responsibility for insurance coverage over the goods, in the case of CIP and CIF
- Determine who is responsible for completing export and import formalities
- Assign responsibility for packaging, marking and the certifications of quality or weight of the goods
The Incoterms® rules are represented with three letters, such as FOB or FCA, DAP or DDP, CIP or CIF. In this article we will focus on just two of the rules: DAP and DDP, including when each of them should be used and their key differences and similarities.
Explore our Incoterms® rules knowledge hub, find content related to the different rules and insightful use cases.
Incoterms® 2020 Certificate
DAP and DDP
Deciding whether to use DAP or DDP in trade transactions depend on numerous factors. But let’s start with some common features that these two Incoterms® rules share.
- Both terms require the seller to deliver the goods to the agreed destination, ensuring they are placed at the buyer’s disposal and ready to be unloaded from the arriving vehicle*.
- Both terms require the seller to assume the risk of loss or damage to the goods during transit, from their origin to the agreed point of delivery at the designated location.
- Both terms obligate the seller to arrange and pay transportation of the goods from their origin to the agreed destination.
- Both terms require the seller to complete and pay for export customs formalities as well as any customs formalities in transit countries through which the goods may pass.
- Both terms make the buyer responsible for accepting delivery of the goods once they are placed at the agreed destination and the seller has notified the buyer, enabling them to take delivery.
- Both terms leave for the buyer the unloading of the goods from the final mode of transport used to deliver them to the designated point and place of destination, as a typical consequence of buyer’s obligation to take delivery of the goods.
*Important note: In both DAP and DDP Incoterms®, ‘delivery’ and ‘destination’ refer to the same concept. The named destination is both where goods are delivered and where the transfer of risk for loss or damage occurs. For instance, with DAP Adolfo Suarez Madrid-Barajas Airport Spain, Incoterms® 2020, the place of delivery and destination of the goods is the named location, where the risk transfers from the seller to the buyer. The buyer is responsible for unloading the goods from the aircraft, and for import formalities, at their own risk and cost.
This note is important as it distinguishes between the “D” and “C” Incoterms®. For example, if sales contract states: CIP Adolfo Suarez Barajas-Madrid Airport Spain, Incoterms® 2020, it means that the seller delivers the goods when they are handed over to the carrier at the start of the transportation journey – let’s say at the cargo terminal of São Paulo-Guarulhos Airport Brazil. The seller hires the carrier and pays the airfreight cost up to the destination (Adolfo Suárez Barajas-Madrid Airport, Spain) but the delivery and transfer of risk occur at the cargo terminal in Brazil. Thus, in “C” terms, the place of delivery and destination are different, with each having a distinct role.
In contrast, if sales contract states: DAP Adolfo Suárez Madrid-Barajas Airport Spain Incoterms® 2020, it means both the place of delivery and the destination are Adolfo Suárez Madrid-Barajas Airport, Spain. This is also where the transfer of risk for loss or damage to the goods occurs, passing from the seller to the buyer.
So, when is it right to use DAP or DDP if both terms have several features in common?
To better understand this, we will explain both terms in more depth. Explore this and other key insights related to the “D” terms in the Incoterms® rules.
Read the article: Incoterms® 2020 vs 2010: What’s changed?
Understanding DAP (Delivery At Place)
Under DAP,the seller delivers the goods and transfers the risks to the buyer once the goods are at the agreed place of destination, ready for unloading. The place of delivery – whether an airport, a designated frontier, a train terminal, a port, the buyer’s premises or another agreed destination – is where the seller fulfils their delivery obligation.
Under DAP, the buyer is responsible for taking delivery of the goods – typically by unloading them at their own risk and expense — as well as handling and paying for the import clearance process.
Basic obligations of the buyer and seller under DAP
- The seller delivers the goods and transfers the risks when the goods are at buyer’s disposal at the agreed destination, still loaded on the arriving vehicle.
- DAP is suitable for any mode of transportation, including multimodal shipments that involve at least two different modes of transportation.
- With the rise of containerised and multimodal shipments, DAP is well-suited to meet these modern transportation practices.
- The seller must arrange and pay for carriage to the agreed place of destination.
- The seller has no obligation to arrange insurance for the buyer. However, the seller assumes the risk of transportation up to the agreed destination.
- The seller must handle export clearance and any necessary customs formalities for countries where the goods transit.
- The buyer is responsible for the costs and risks associated with unloading the goods, unless the transport contract includes unloading costs for the seller. In such cases, the buyer assumes only the risks during unloading.
- The buyer must manage and pay for all import clearance formalities.
When do you use DAP?
DAP is used in the following scenarios:
- When buyer is required to unload the goods from the final mode of transport and handle import formalities as previously mentioned.
- When the seller is responsible for completing export formalities and any customs requirements in transit countries.
- When the seller agrees to deliver goods directly to the buyer’s facilities (e.g. warehouse, factory, or shop), known as door-to-door delivery. This requires the buyer to complete import formalities – at their own cost, risk, and responsibility – and to inform the seller once the process is complete. Timely notification enables the seller to resume transportation to the buyer’s facilities. Under sub-article B3 (a) of the Incoterms® 2020 rules, the buyer bears all risks of loss or damage during the import clearance process. If the buyer is unwilling to assume this risk, the DDP rule should be used instead of DAP (but note, foreign sellers may have difficulty carrying out import clearance in the destination country as called for under DDP).
- When buyer is required to unload the goods from the final mode of transport and handle import formalities as previously mentioned.
Understanding DDP (Delivered Duty Paid)
Under DDP, the seller delivers the goods and transfers the risk of loss or damage to the buyer when the goods are at the buyer’s disposal at the agreed point in the designated destination, ready for unloading from the arriving vehicle. The delivery location – typically the buyer’s premises, often referred to as door-to-door delivery or warehouse-to-warehouse – is where the seller fulfils their delivery obligation.
DDP requires the seller to handle and pay for all the export, transit, and – importantly — import clearance formalities required. The buyer, on the other hand, is responsible for unloading the goods at the agreed delivery point as part of its obligation to take delivery, bearing the associated risks and, typically, costs.
Basic obligations of the buyer and seller under DDP
- The seller delivers the goods and transfers the risks once they have arrived at the designated place of destination and are at the buyer’s disposal, ready for unloading from the arriving vehicle.
- The seller must notify the buyer in a timely manner of the goods’ arrival at the agreed destination, enabling the buyer to receive them.
- The seller is responsible for carrying out and paying all customs formalities, including export, import – which may be difficult for a foreign seller –, and, if applicable, transit procedures.
- The seller must arrange and pay for transportation by road, rail, air, sea or inland waterway or a combination of modes (multimodal shipments). The transportation contract may or may not include the cost of unloading, depending on the agreement with the carrier. It is advisable for the seller to keep the buyer informed to avoid double payment for unloading.
- The seller is not obligated to arrange insurance for the buyer. However, the seller assumes the risk and responsibility of delivering the goods to the agreed destination.
- Under a DDP contract, the seller takes on maximum responsibility for risks and costs, while the buyer’s sole obligation is to unload the goods from the final mode of transport at the agreed destination as part of its obligation to take delivery.
When do you use DDP?
DDP is used in the following scenarios:
- When the seller commits to delivering the goods to a designated point and place of destination, assuming the risks for loss or damage from their premises to the agreed destination.
- When the seller is prepared to handle all customs formalities, including compliance with regulatory requirements in transit countries and the country of import. According to article B7 of the Incoterms® 2020 rules, the buyer must assist the seller in obtaining any documents or information required by the import customs authorities. However, the seller is ultimately responsible for the import clearance process and any associated challenges. If the seller does not want – or is prevented by local rules in the destination country – to manage import clearance, then DAP is a more suitable Incoterms® rule.
- When the buyer prefers not to handle transportation or customs processes (export, transit, or import) and instead receive the goods at the designated point and place of destination, such as their own facilities (warehouse, factory, or shop), referred to as a door-to-door delivery.
- When the buyer is willing to assume only the risk of unloading the goods from the arriving vehicle.
- When the buyer agrees to pay a higher price for the goods, covering not just their value and packaging but also transportation (end to end), all customs formalities, and related documents, such as tariffs, taxes, permits and licenses required by the customs authorities.
ICC Handbook on Transport and the Incoterms® 2020 Rules
Comparative analysis of DAP and DDP
The key difference between DAP and DDP lies in its import customs clearance. Under DAP, the buyer is responsible for carrying out and paying for import clearance. In contrast, with DDP, the seller assumes this responsibility.
However, it is not always straightforward for the seller to handle import clearance under DDP. Some import customs authorities impose legal restrictions or regulations that require the local importer (here, buyer) to carry out the import clearance themselves. In such cases, DDP cannot be used, and DAP would be the appropriate Incoterms® rule.
ICC Digital Library
Use cases
Case with DAP:
DAP is ideal when goods are transported in containers or on pallets, especially when multiple modes of transportation are involved.
For example, the seller is based in New York City, USA, and the buyer is in Mexico City, Mexico. The goods are vaccines and the agreed contract of sale is: DAP Mexico City’s International Airport, Cargo Terminal 1, Incoterms® 2020.
- The seller delivers the goods to the carrier (Delta Air Cargo) at JFK Airport, New York, with export clearance completed.
- The seller arranges and pays for air transportation to Mexico’s City International Airport.
- Upon arrival, the seller gives the buyer timely notice, enabling them to receive the goods.
- The seller informs the buyer that the unloading cost from the carrier’s aircraft is included in the transportation contract. The seller provides the buyer with the AWB (along with the commercial invoice, the certificates of origin, quality, and sanitary documents), confirming that the unloading cost is covered.
- The unloading of goods from the aircraft is at the buyer’s risk.
- The buyer assumes all risk of loss or damage to the goods starting from the unloading process.
- The goods are transported within the airport to the customs warehouse for import clearance.
- The buyer is responsible for carrying out and paying for import clearance.
- Once import clearance is completed, the buyer arranges transport to their final destination within Mexico City, bearing the costs and risks.
Now, let’s see a case with DDP:
DDP is appropriate when goods are transported using two or more modes of transportation.
For example, the seller is in Hokkaido, Japan, and the buyer is in La Paz, Bolivia. The goods are Toyota Corola brand new cars. The agreed contract of sale is: DDP, Av. 20 de Octubre Esquina Campos N° 1234, La Paz, Bolivia, Incoterms® 2020.
- The seller arranges and pays for transportation of the cars up to the specified address, excluding unloading costs, which is clearly communicated to the buyer.
- The seller loads the cars onto a train in Hokkaido, destined for the port of Hakodate.
- The cars arrive at Hakodate, and after export clearance (handled and paid for by the seller), they are loaded onto a ship bound for the port of Arica, Chile.
- The maritime shipment to Arica is necessary because Bolivia is landlocked, and Arica is the nearest port. The goods are transported through Arica in transit to Bolivia.
- Upon arrival at Arica, the cars are unloaded from the ship, and the seller completes customs clearance in Chile for goods in transit.
- The cars are then loaded onto specialised car transport trucks. This part of transportation, supported by a single multimodal bill of lading, continues at the seller’s risks and expense.
- The trucks reach the Chile-Bolivia border, where the seller completes the import clearance formalities.
- After import clearance, the trucks proceed to La Paz, still at the seller’s risk and expense.
- The trucks arrive at the agreed delivery point (Av. 20 de Octubre, Esquina Campos N° 1234, La Paz, Bolivia). At this stage, unloading is at the buyer’s risk and expense, as it was not included in the transportation contract.
- The buyer unloads the cars at their own risk and expense. The seller’s responsibility for risks and costs ends once the goods are delivered at the agreed location, ready for unloading and at the buyer’s disposal.
Incoterms® 2020 English
Choosing the right Incoterms® rule
There is no “right or wrong” Incoterms® rule, but instead, the focus should be on selecting the most appropriate one.
Whether choosing DAP or DDP, the seller and buyer, after carefully reviewing the information mentioned above, and incorporating insights from ICC Academy courses and certifications based on the Incoterms® 2020, publication 723, will be better prepared to make informed decisions.
