What is the difference between the terms “DDU and DDP”. Expecting experts
DDP: DELIVERY DUTY PAID.
DDU: DELIVERY DUTY UNPAID.
Thanks and Regards-
Md. Azmol Hossain
email: [email protected]
Really nice to have you here. I try to minimize the reply:
DDU (named place) = All costs and risks up to the named
. place are for seller's account, but
. import customs not yet paid (i.e. still
. for buyer's account)
DDP (named place) = Same as DDU (named place), but
. import duties are to be paid by seller
-Each long journey starts with a small step-
Assuming in both cases we are talking about the Incoterms DDU and DDP and that neither has been modified beyond its 2000 version; and with the caution that the moment you précis an Incoterm you are in a dangerous place...
The similarities are that in both cases the seller ‘delivers” (best thought of as the moment where the seller acquires the right to be paid and/or when the contract ends) when the goods are delivered still on the delivering vehicle, (device, ship, truck etc) at the place stated in the term, somewhere in the country of destination.
Accordingly “DDU – named place” or “DDP – named place”. In both instances, the seller incurs all transport costs (and costs arising out of transport costs) to get the cargo to that point.
The difference is that in a DDP contract, the seller must also undertake the cost and risk of clearing the goods through the local customs process (in the country of destination) too. This process – which falls under the broad idea of “Duty” in Incoterms – involves the appointment of the clearing agent, the disbursement of the agent’s fees and the disbursement of the local duties and taxes, the cost and risk of documentation and so on.
I would encourage you to think of it like this – although it is only my own and not the ICC’s guide – that in a DDU transaction, the seller pays everything prior to arrival in the destination country and on arrival, continues to pay (and take the risk of) all charges arising from physical activity i.e. transport, handling etc., up to the arrival at the named place. The buyer – after arrival in the destination country – bears the cost and risk of all administrative charges arising from duty and tax activity.
Thus in a DDP deal, the seller undertakes the lot, should they arise before the named place.The devil is in the detail, but these are the broad strokes.
one hill at a time, please
Just to add to Phill's authoritative reply, the purpose and scope of Incoterms (all references to Incoterms here are intended as Incoterms 2000 unmodified) also need to be understood when trying to compare two different terms.
The following is a quotation from the introduction to Incoterms :
"It appears that two particular misconceptions about Incoterms are very common. First, Incoterms are frequently misunderstood as applying to the contract of carriage, rather than to the contract of sale. Second, they are sometimes wrongly assumed to provide all the details which parties may wish to include in a contract of sale. "
The Incoterm supports the contract of sale - if you look at the sellers obligations for a DDU contract you will see the following headings :
Provision of goods in conformity with the contract
Licences, authorizations and formalities
Contracts of carriage and insurance
Transfer of risks
Division of costs
Notice to buyer
Proof of delivery, transport document or equivalent electronic message
Checking - packaging - marking
When you are quoting to supply a buyer and you have agreed on the basic Incoterm, you also have to delve deeper into the contract terms to see if there are additional responsibilities and/or costs that should be taken into account in your pricing, delivery timeline, packaging, customs formalities etc.
So, in summary, Phill is accurate in the differences between DDU and DDP as far as the pure Incoterm is concerned, but you have to look into the sales contract to define the total differential.
Tulsi has asked for Experts views but unluckyly I am not an expert, still I want to give my very brief understanding.
Apart from the responsibilities of buyer or seller, I feel the matter is about Duties and Taxes of Destination ( named place ), whether, they are Unpaid or Paid.
Please guide me further.
I need some help with this myself and im glad i think ive found you people who can help!
Ive been asked if my company can export to russia on a DDU basis now rather than the current CIP to airport.
Do we as the exporter need to pay for the expensive certification required for clearance into Russia or is that the importers issue.
If the exporter pays transportation costs on a DDU basis, then we have to arrange a truck from the airport to the customers site, but how will we know when its cleared? Mainly i need to know how much responsibility the exporter will have for providing certification to get the goods into Russia, any help is apprecieated
The intention of the buyer and seller in a ‘C’-prefixed sale is that the seller’s price includes the cost of transport, but at the buyer’s risk of non-arrival. In Incoterms CIP contracts, the intention is that the seller ‘delivers’ i.e. the seller has met their final contractual obligation, when the cargo is handed over to a carrier of the seller’s choice, in the country of origin, freight-prepaid to the final named destination point.
So broadly, the concept with CIP (and CPT) is that risks pass from the seller to the buyer in the country of origin while costs pass in the country of destination.
Accordingly, the first thing to understand with CIP is that the seller has no risks in transit. The seller’s contract ends when they ‘send’ the cargo (that is, when they hand it over to the carrier), regardless of whether the buyer actually receives it. The insurance dealt with under a CIP contract has no benefit to the seller (at least not in the usual sense) – the seller procures it for the buyer.
But if the intention was that, in addition to the costs of transit to the named place, the seller also takes the transit risk then the appropriate Incoterm would begin with a ‘D’-prefix, most probably DDU if we were looking for a straight alternative to CPT.
Although they are identical in respect of your question i.e. the import certificate in both cases is the buyer’s obligation, risk and cost, the impact of failure to obtain the certificate (for example) is starkly different. In a C-prefixed supply, should the certificate not materialise, there is no contractual impact on the seller – but in a DDU transaction, there could be, if the ‘named place’ (the place of final delivery in DDU) is a place beyond the customs event. What I mean is: will the DDU seller be able to get to the final place of delivery if the buyer fails in their customs endeavours?
Usually, seller’s manage this risk by either selling only to buyer’s they believe will not do this to them or – more cautiously – they sell only to a named place which may be reached without import clearance e.g. an airport and not a final address in a city. So CIP named Airport should convert to DDU named airport and not a place beyond this.
BUT: Although commercial terms are not connected to payment terms, your (as the seller) ability to manage your position flows from you finding a connection. In a C-prefixed sale (where the seller wants no risk) the payment terms should be within the range from pre-payment deteriorating to no worse than bank security (provided the bank security is triggered by documents the seller generates in the country of origin) whereas in a D-prefix the range runs from bank security triggered by buyer documents to a (worse-case) pure open account (i.e. unsecured credit). I must again stress that payment terms are not considered under Incoterms – commercial terms in general, Incoterms in particular, deal only with your RIGHT to be paid, not the actual mechanism of payment itself. My caution to any D-prefixed seller (and there is an equal and opposite caution for any C-prefixed buyer) is: what will you do with your RIGHT to be paid if the other party has the cargo and the money and they default? This really is the issue if you change from C- to D-prefixes.
As is often the case, there is a clear cut answer to your question regarding the certificate, but this is perhaps not the question to be asking anyway.
Can you tell me what payment conditions you presently employ and those your buyer has suggested (if suggested) along with the contract name change?
one hill at a time, please