Incoterms: The Universal Language of Shipping Terms
Before we dive deep, let’s get familiar with the term ‘Incoterms’, also known as International Commercial Terms. Incoterms decide who pays for what and who is responsible for any issues that may arise during the shipping process of your goods. This is why choosing the right shipping option for your e-commerce business is vital. A bit like choosing a travel route – the smoother and more straightforward the path, the better the journey!
So how does this relate to DDP vs DAP? These shipping terms are among the 11 pre-defined Incoterms used by the International Chamber of Commerce (ICC) to provide clear terms between global buyers and sellers. These terms were updated in 2020, which you can review here.
What is DDP (Delivery Duty Paid)?
DDP, or Delivery Duty Paid, is where the seller takes on all the responsibilities and costs. The seller does everything from shipping the product to paying customs duties.
Pros of DDP Shipping
- Convenience for the buyer. The buyer simply pays for shipping when they order from your business and sits back, knowing you’re handling the rest.
- Complete cost transparency. Your customer is aware of all costs associated with buying from your business at the time they make the purchase.
- Seller control over the shipping process. You are aware of where your customer’s order is at all times and can ensure import duties and taxes are sorted promptly.
Cons of DDP Shipping
- Potentially steeper costs for the sellers. If you ship to customers all over the world, it can be difficult to estimate all potential costs associated with local import taxes and duties.
- The seller is responsible for any delays or issues. Your customer will come to you for all order updates and may not understand delays outside of your control.
What is DAP (Delivered at Place)?
DAP, or Delivered at Place, is a bit more flexible. The seller delivers the goods to a specified place, but the buyer handles the import duties.
Pros of DAP Shipping
- Flexibility for the buyer regarding import duties. Your buyer can choose what they want to pay.
- Potentially lower upfront costs for sellers. Your business is responsible for getting the goods to an agreed point, after which the buyer takes over any additional costs such as local taxes and import fees.
Cons of DAP Shipping
- The buyer has to tackle customs duties and taxes. Which can sour their opinion of purchasing from your business, especially if there are unforeseen costs.
- Unforeseen costs for the buyer can sometimes pop up. And when they do, the buyer may not be happy with your choice of DAP shipping.
DDP vs DAP: A Side-by-Side Comparison
When it comes to pricing structure, DDP means the seller pays the for all shipping costs, while with DAP, the buyer may need to pay out for additional duties.
As for risk and responsibilities, in DDP, the seller is in charge of order fulfilment from start to finish. With DAP, the buyer takes the reins once the goods arrive at a specified place.
One common misconception is that DDP is always expensive for sellers, while DAP is cheaper. However, shipping costs can vary based on many factors. DDP might have higher upfront costs, but it offers more control for e-commerce businesses. DAP can be cheaper initially but might have hidden costs later, like bad reviews for your business or refund requests from orders that haven’t arrived.
As with all things customer service related, it’s important to remember that clarity is key! Misunderstandings between sellers and buyers can lead to disputes. So always keep the communication lines open.
DDP vs DAP: Which Should You Use?
This is the million-pound question. The answer depends on your business model, your customers, your bottom line and what you’re comfortable with.
For many e-commerce businesses, DDP shipping sounds ideal to keep your customers happy. However, if you are delivering to customers overseas, this can significantly increase the cost to your business when you factor in local import duties and taxes, which vary depending on the country. You will also be expected to keep customers informed about any delays or issues with their orders, and because they have a totally “hands-off approach” to this, they may blame your business for issues related to the goods crossing the border that are out of your control.
If you’re leaning towards DAP, it’s great when your buyers want more control over import duties, and you want to keep your own costs down when selling to customers overseas. However, you need to be very transparent with your customers that they will be responsible for these charges, as well as making sure they receive their goods once they cross the border.
DDP vs DAP Shipping for E-commerce Brands
The world of shipping terms might seem daunting, but with the right understanding, it’s a breeze. Remember, whether DDP or DAP, the right choice can significantly influence your business’s success.
Here are our best tips for e-commerce sellers reviewing their shipping options for overseas order fulfilment.
- Always keep things transparent with your customers. No one likes unpleasant surprises.
- Partner with a trustworthy fulfilment provider. Like us!
- Regularly review your shipping terms, customer reviews and additional shipping expenses.
Thinking of levelling up your order fulfilment game? Book a call with us at Delta Fulfilment. We offer tailor-made global e-commerce fulfilment solutions that are as unique as your business needs. Because, at the end of the day, a successful partnership is all about finding the perfect fit.