What is delivered duty paid (DDP) shipping and why it’s preferred

International shipments must be labeled with the appropriate international commercial terms, or Incoterms — standardized delivery terms that identify the party responsible for customs clearance, import, insurance, and shipping costs for cross-border shipments. Incoterms also determine when liability shifts from the seller or shipper to the buyer.

There are currently 11 Incoterms, seven of which cover any mode of transport:

• CIP: Carriage and insurance paid to
• CPT: Carriage paid to
• DAP: Delivery at place (aka, DDU, Delivery duty unpaid)
• DDP: Delivery duty paid
• DPU: Delivery at place unloaded (previously DAT, or delivery at terminal)
• EXW: Ex works
• FCA: Free carrier

Four Incoterms apply to sea and inland waterway transport only:

• CFR: Cost and freight
• CIF: Cost, insurance, freight
• FAS: Free alongside ship
• FOB: Free on board

The most common Incoterms for cross-border ecommerce sales are DAP and DDP. Sellers set the Incoterms and should do so with care: Different Incoterms place different obligations on buyers and sellers, and this can have an enormous impact on customer experience.

For example, when DAP is used for international transactions, the seller arranges shipping, pays transportation costs, and handles the export process. The buyer handles the import process, pays all applicable customs duties and import taxes, and unloads the shipment at the destination.

This can be a fine option so long as sellers clearly communicate the process and set customer expectations. Or, it can lead to disgruntled customers and rejected shipments when a customer who’s expecting a package to be delivered to their doorstop instead gets a message that it’s being held at customs until they pay all associated duties and taxes.

Shipping DDP is generally the better option for cross-border transactions — at least for consumers — because it requires sellers to handle shipping logistics and customs clearance. The seller typically collects all applicable taxes and fees from the customer at checkout, so there are no unwelcome surprises upon delivery. DDP is the only Incoterm in which the buyer isn’t responsible for paying customs duties and import taxes at the border.

It’s not uncommon for sellers to ship DDP into some countries but not others. For example, a U.S. company with numerous customers in Canada and Mexico would likely benefit from shipping DDP into those markets. The same company may opt to ship DAP for one-off sales into Iceland or Belize, unless it’s interested in growing its sales into those countries.

When shipping DDP, it’s extremely important to identify the contents of each shipment with country-specific Harmonized System (HS) codes. Because keeping up with changing HS codes, tariffs, duty rates, and import regulations for multiple countries requires time and expertise, it may not be worth the effort to calculate and collect the duties and taxes up front for shipments into countries where sales volumes are low. On the other hand, it’s probably worth calculating and collecting taxes and fees for shipments into countries with strong sales, or where a business wants to create a loyal customer base.

Transitioning from DAP to DDP can secure customer loyalty and help grow international sales. 

Implementing DDP is sometimes as simple as checking a box, but the process can vary depending on the shipping company. Furthermore, some shipping carriers (e.g., the U.S. Postal Service) don’t offer vendors the ability to ship DDP, and some that do may call it by another name. If your carrier doesn’t offer DDP, you may want to consider switching to one that does.

Here’s how to enable DDP with four of the most popular shipping providers:

DHL

DHL Express and DHL eCommerce are two shipping services owned by Deutsche Post DHL Group. DHL Express will ship DDP to any country where that’s allowed (it’s not permitted in some countries, like Russia). DHL eCommerce consolidates multiple shipments into a large container, which can be a good option for businesses with a high volume of international orders; it ships DDP to fewer destinations but is expanding that service.

Where DDP shipments are allowed, vendors may choose to have postage and customs duties paid by the seller (the sender), the customer (the recipient), or a third party. “Recipient” is generally the default setting (aka, shipping DAP).

To ship DDP with DHL, go to the Payment Options section and select Sender under Bill Duties and Taxes To. Then click Update. Note: You must have a DHL account to pay duties and taxes for the receiver.

For DDP shipments, DHL typically invoices the sender after shipment delivery for the duties and taxes it paid on their behalf at destination, “plus a small administration fee.” DHL Express also charges a $15 fee per shipment, in addition to the rate quote, when a third party is used.

See FAQs — Duties and Taxes for more information.

FedEx

Under Billing details on the Shipment details tab, select Sender from the drop-down menu next to Bill duties/taxes/fees. As with DHL, Recipient is generally the default.

Deciding whether to ship DAP or DDP is a key consideration for global sellers. Other important questions to consider include:

• Is there a market for what you sell in that country?
• Can you ship what you sell into the destination country?
• Are the goods subject to customs duty and/or value-added tax (VAT)?
• How long will it take to ship goods there?

It’s also important to keep an ear to the ground, because rules and regulations affecting international sales are subject to change. As of January 1, 2021, for example, there are new reporting and tax requirements for businesses selling into the U.K.

Avalara helps businesses of all sizes with international tax compliance. It plugs into shopping carts and collects customs duties and import taxes from customers in real time, and alerts the shipping company to bill the seller, not the customer — which is now required in the U.K.

Need help with cross-border selling solutions? Check out avalara.com/goglobal.