When you are not well-versed in the world of logistics, learning about it can feel intimidating. As an online seller, you’ll need to make sure you are complying with international trade laws. They exist to protect both the seller and the buyer in an international transaction. They also help avoid misunderstandings or disagreements about who is responsible for paying duties, taxes, customs fees, etc., when goods cross borders.
In this blog post, we will be focusing on what DDP means in logistics and how it applies to your life as an online seller.
What Does DDP Stand For?
DDP is an Incoterm® which stands for Delivered Duty Paid and what that means is that the seller takes responsibility for all transportation costs, including shipping fees as well as import taxes, to get goods delivered to a destination. In DDP, the seller also acknowledges the risks involved in the delivery of the goods.
Incoterms® are a set of trading terms that define the relationship and responsibilities between buyers and sellers in commercial transactions. There are currently 11 Incoterms® and they were established by the International Chambers of Commerce, meaning that they are accepted and standardly used worldwide.
Why DDP Matters With Fulfillment Services
Many eCommerce sellers source their products from overseas and use fulfillment services to pack their buyers’ orders and deliver it to them. There are cases when instead of receiving the shipments first and then sending inventory over to fulfillment centers, sellers opt to have their inventory shipped directly to the fulfillment centers.
It’s clearly stated on Amazon’s help page on Seller Central that all shipments to their fulfillment centers that are not indicated as DDP will be “refused without further concession”. Therefore, sellers who use the very popular Amazon FBA method are responsible for transportation costs when shipping their goods to Amazon’s fulfillment centers. In some cases, DDP is referred to as “Free Domicile”, which you should also be aware of.
A fairly new fulfillment service, it’s been gaining popularity as an alternative to Amazon FBA because. Over 3,600 brands put their trust in ShipBob because of the ability to have more control over inventory. While Amazon penalizes the sellers who use their service and low inventory turnover rates, Shipbob sellers don’t have to worry about that. This can be a sigh of relief for sellers who are just starting out and want to take it slow in how they build up their business.
ShipBob’s support page has also made it very clear that shipping inventory to them from outside the US must be DDP.
Another new fulfillment service, but they’ve set themselves up well all over the globe. They already have fulfillment centers in the US, Europe, Russia, Asia and Australia. This can give you peace of mind that you can make transactions all over the world! Their business model is perfect for small business owners, because they don’t require any minimum number of orders. If you fulfill between 0-500 orders monthly, they’ll require you to pay $2.50 per the first item per order. Items beyond that will cost you $0.50. All in all, if you have more orders, it’s more affordable.
They even have a service to help you calculate DDP costs, which you can read about here.
Since Amazon has dominated the industry and many sellers are unaware that more options are available, we’re happy to tell you that a familiar name you can trust FedEx even has their own fulfillment service. However, it’s an option for the bigger businesses, because part of their requirements to do business with them is a minimum order volume of 1,130,000 orders per year.
Read about their Purchase Order Terms & Conditions here.
Seller vs. Buyer Responsibilities Within DDP
Quite simply, the only responsibility that a buyer has within a DDP arrangement is unloading and receiving.
Sellers, on the other hand, are responsible for:
- Sales contracts and related documents
- Proper packing of goods
- Labelling shipments
- Proof of delivery
- Domestic freight
- All freight from shipper location to consignee location
- Customs clearance
- Duties & Taxes
- Value-Added Tax
Knowing all of the expenses involved with DDP is crucial for you as a seller to understand how important researching the right freight forwarders to deal with.
Putting in the effort to understand these responsibilities also helps in determining retail price, because they will identify how much of a profit they will make despite all of these expenses in the logistics process.
DDP vs. DAP vs. DPU
DAP (Delivered at Place) – It is almost the same as DDP, except the buyer is responsible for Customs clearances, duties & taxes, and unloading. While the seller still pays for everything else they would in DDP.
DPU (Delivered at Place Unloaded) – Very similar to DAP where in the buyer takes care of Customs clearances, but in this case, the responsibility and risk for the unloading relies on the seller at terminal.
Again, when indicating incoterms, it must be followed by a location to make it clear which party is responsible for what. In the case of DAP and DPU, it must be followed by the location of the buyer, because the buyer is the one responsible for import clearance.
Knowing that DAP and DAT are option as well can help you think of what kind of arrangement is best between you and a buyer.
What Else Do I Need To Know?
- There are many fulfillment services, and we suggest that you do thorough research on the fulfillment service you choose, because it’s not a good idea to blindly attempt to ship orders to fulfillment centers with the hopes that they will shoulder all the associated costs.
- The cause of delays and headaches that will come with a warehouse refusing a shipment due to lack of an understanding on DDP can be disastrous to the timeline of your deliveries and the flow of your business. The willingness to pay for necessary costs and handle these arrangements is part of your commitment as an eCommerce seller if that is the policy of the fulfillment service.
- If you will be shipping items overseas and the shipment cannot be handled by a simple courier, you will need to make use of a freight forwarder. When indicating DDP on a shipment, it needs to include the location of origin, otherwise, it is unclear which party is responsible for what during the logistics process and causes delays.
Incoterms are what eCommerce sellers have to learn in order to comply with international trade laws. It can be difficult to start an eCommerce business considering all the new things that sellers need to learn about, but there are tons of resources to help with this.
It’s crucial to understand what DDP means in logistics because it is the most commonly used and can have a big impact on your profitability. Learning what the responsibility of both sellers and buyers are within this agreement is important for keeping up with all international trade laws as a seller, but also understanding what freight forwarders might be best suited for you based on what you need them to do.
If you need any help, we’re here for you! Contact us and continue to read the Sourcing Monster blog for all things eCommerce!