An international trade transaction may appear as a simple exchange of goods, but beneath the surface lies a complex framework of obligations. Many businesses face unexpected costs during customs clearance and tax payments due to unfamiliarity with trade terms. Incoterms—the standardized "rules of the game" for global commerce—precisely define responsibilities, risks, and cost allocations between buyers and sellers. Among these, "arrival contracts" like DDP and DAP are particularly common, yet their subtle differences frequently lead to disputes.
The Foundation: What Are Incoterms?
Developed by the International Chamber of Commerce (ICC), Incoterms are a set of standardized rules that clarify responsibility divisions in international sales contracts. These terms govern transportation, insurance, customs clearance, and establish when costs and risks transfer between parties. Importantly, Incoterms only regulate delivery-related obligations—they don't address payment methods or breach of contract terms, requiring careful integration with specific trade agreements.
DDP: Delivered Duty Paid – Maximum Seller Responsibility
DDP (Delivered Duty Paid) represents the Incoterm with the greatest seller obligations. Under this arrangement:
- The seller must deliver goods to the buyer's specified destination
- All costs are covered—including import clearance, duties, VAT, and other taxes
- The buyer essentially receives goods "turnkey" without additional steps
Key seller responsibilities under DDP:
- Arranging all transportation (sea/air/land)
- Bearing all transit risks (loss/damage)
- Handling export/import clearance (documents, duty payments)
- Covering all import-related taxes and fees
- Ensuring safe delivery at destination
DAP: Delivered At Place – Buyer Handles Customs
DAP (Delivered At Place) reduces seller obligations compared to DDP:
- Seller delivers goods to specified destination (excluding unloading unless agreed)
- Seller bears transit risks until delivery
- Buyer handles import clearance and pays all duties/taxes
DDU: The Legacy Term (Replaced by DAP)
DDU (Delivered Duty Unpaid) from Incoterms 2000 was functionally similar to DAP but has been replaced in 2010/2020 versions. While obsolete, it may appear in older contracts—experts recommend updating to DAP to prevent disputes.
Comparative Analysis: DDP vs. DAP vs. DDU
| Dimension | DDP (Delivered Duty Paid) | DAP (Delivered At Place) | DDU (Delivered Duty Unpaid) |
|---|---|---|---|
| Current Version | Valid in 2020/2010/2000 | Recommended in 2020/2010 (replaces DDU) | Only in 2000 and earlier |
| Risk Transfer | At destination delivery | At destination delivery | At destination delivery |
| Transport | Seller covers entire journey | Seller covers entire journey | Seller covers entire journey |
| Import Clearance | Seller's duty (with buyer document support) | Buyer's responsibility | Buyer's responsibility |
| Import Taxes | Seller pays all | Buyer pays all | Buyer pays all |
Selecting the Right Incoterm
When to Choose DDP:
- Inexperienced buyers: Ideal for B2C cross-border or first-time importers
- Cost predictability: Locks in total expenses against tariff fluctuations
- Complex destinations: When seller has superior clearance expertise
When to Choose DAP:
- Buyer clearance capacity: Large enterprises or professional import agents
- Tax optimization: When buyers utilize tax exemptions/VAT credits
- Modern contracts: Default choice under Incoterms 2010/2020
Critical Implementation Notes
- Specify locations precisely: "DDP New York" not just "DDP USA"
- Unloading exclusion: DDP doesn't cover unloading unless contracted
- Insurance optional: Requires explicit contract clauses
- Document cooperation: Buyers must provide import licenses/tax IDs promptly for DDP
Conclusion
| Term | Key Feature | Memory Tip |
|---|---|---|
| DDP | All-inclusive (transport+clearance+taxes) | Seller "covers everything," buyer "zero hassle" |
| DAP | Delivery without tax coverage | Seller "delivers to door," buyer "manages customs" |
| DDU | Legacy version of DAP | Deprecated—use DAP instead |
Incoterms form the backbone of international contracts, with DDP and DAP representing opposite approaches to import responsibilities. The core distinction lies in customs clearance and tax payment obligations—DDP represents full seller coverage, while DAP shifts these duties to the buyer. Proper understanding empowers businesses to negotiate favorable terms and mitigate cross-border trade risks.