In cross-border ecommerce, the price displayed at checkout is not necessarily the final amount the buyer has to pay. Import duties, value-added tax, customs brokerage fees, or handling fees may only appear when the goods arrive in the importing country. If these amounts are not calculated in advance, the buyer may refuse delivery, while the Seller has to bear additional storage, return, or redelivery costs.

What is DDP is therefore an important question for businesses that want to provide an all-inclusive price when selling internationally. DDP helps buyers limit unexpected charges, but transfers most of the responsibility for shipping, customs clearance, and import duties to the seller. Therefore, businesses should only apply it when they can accurately calculate the total cost to the delivery point (landed cost) and meet compliance requirements in the destination market.

1. What is DDP in international shipping?

What is DDP? DDP stands for Delivered Duty Paid, a term under the 2020 International Commercial Terms (Incoterms®) rules. According to the ICC, this is the term that places the highest level of responsibility on the seller. The seller must arrange transportation, complete export and import procedures, and pay the related taxes and charges to bring the goods to the agreed destination.

The risk of loss or damage only transfers from the seller to the buyer when the goods are placed at the buyer’s disposal at the destination, on the arriving means of transport and ready for unloading. Under DDP, the buyer generally bears the risk and cost of unloading, unless otherwise provided in the contract of carriage or contract of sale.

When answering what is DDP, businesses also need to understand the limits of Incoterms®. These rules only allocate tasks, costs, and risks during the delivery process. Incoterms® do not replace the contract of sale, determine the time of transfer of ownership, payment terms, governing law, or dispute resolution mechanism. These matters still need to be agreed upon separately.

2. How does the DDP shipping process work?

After understanding what DDP is, businesses need to examine the entire implementation process instead of focusing only on shipping charges. Product data, customs documents, customs clearance arrangements, and each cost category need to be prepared in advance so that the goods can move from the point-of-origin warehouse to the correct delivery location.

2.1. Standardize product data and documents

The seller needs to determine the goods description, Harmonized System (HS) code, origin, customs value, quantity, and any relevant permits or certificates. The HS code is the basis for customs authorities to determine tax rates and specialized regulatory requirements. Incorrectly declaring the code, value, or origin may cause the goods to be detained, assessed for additional tax, or subject to penalties.

2.2. Arrange transportation and export customs clearance

The seller selects a carrier or freight forwarder, then prepares the commercial invoice, packing list, shipping labels, and export documentation. DDP can apply to any mode of transport or multimodal route, as long as the delivery location is clearly stated in the contract.

2.3. Complete import customs clearance and pay taxes

This is the core distinguishing point of DDP shipping. The seller must arrange import customs clearance and pay import duties, value-added tax (VAT), goods and services tax (GST), or other mandatory charges in the destination market. The business needs to verify whether a foreign entity can directly act as the importer or must use a local legal entity, tax representative, or importer of record.

2.4. Complete last-mile delivery and transfer risk

Properly understanding what DDP is also requires the business to accurately identify the transfer point for costs and risks. After the goods clear customs, the seller continues to bear the costs and risks until the DDP location stated in the contract. If only the city name is stated, the parties may have disputes over the scope and cost of last-mile delivery. Therefore, businesses should state a specific address or delivery point together with the version of the rules, for example: “DDP [delivery address], Incoterms® 2020.”

3. What DDP costs must the seller bear?

To fully understand what DDP is, businesses need to view DDP as a total cost structure to the delivery point, instead of seeing it only as a shipping rate. In this structure, international shipping costs are only one component, alongside import duties, customs clearance fees, last-mile delivery fees, and other costs incurred. Costs under DDP terms may include:

• Packaging and labeling: packaging, shipping marks, and requirements for protecting the goods throughout the entire journey.

• Transportation: domestic transportation in the exporting country, international freight, transshipment costs, and last-mile delivery.

• Customs clearance: export and import declaration fees, customs brokerage fees, and related documentation.

• Taxes and charges: export duties, if any, import duties, value-added tax, goods and services tax, and mandatory charges in the destination market.

• Additional costs: storage, demurrage, customs inspection, exception handling, or redelivery when customs clearance is delayed.

• Risk of loss or damage: the seller bears the risk up to the agreed delivery point and may purchase insurance to protect its interests.

To set accurate selling prices and protect profit margins, businesses can estimate the total cost under DDP as follows:

Total DDP cost = Cost of goods + packaging + transportation + customs clearance + import duties + VAT/GST + customs brokerage + last-mile delivery + contingency allowance.

Insurance is not a mandatory obligation of the seller under DDP terms. However, because the seller bears the risk for most of the journey, insurance is often an appropriate risk management measure. Businesses also need to separate each cost category in the accounting system. If everything is grouped under shipping costs, profit margins by market and stock-keeping unit (SKU) may be inaccurately reflected.

4. What is the difference between DDP and DDU?

Many Sellers search for “DDP and DDU,” but Delivered Duty Unpaid - DDU (DDU) was removed from Incoterms® from the 2010 version. In new contracts, Delivered at Place (DAP) is commonly used to express the corresponding allocation of responsibilities, under which the buyer handles import procedures and taxes. The ICC’s history of Incoterms® confirms that DDU is an old term. Therefore, businesses should use current terms and clearly state the applicable Incoterms® version in the contract.

Properly understanding what DDP is helps businesses choose delivery terms based on their actual capabilities. If the objective is for the buyer to complete customs clearance and pay import duties, DAP is a clearer choice than DDU in new contracts. If the business wants to provide an all-inclusive price and has sufficient capability to handle imports in the destination country, DDP is more appropriate. The difference needs to be evaluated not only in terms of the buyer’s experience, but also the seller’s ability to maintain compliance and control costs.

5. When should businesses use DDP terms?

5.1. Cases where DDP is suitable

After clearly understanding what DDP is and the responsibilities involved, businesses can assess its suitability for each market. DDP terms are often suitable for business-to-consumer (B2C) models and cross-border ecommerce, where buyers expect to know the total amount payable at checkout. Businesses can consider DDP when 

• The business wants to provide an all-inclusive price and limit additional charges upon delivery.

• The product portfolio, Harmonized System classification codes (HS codes), origin, and tax rates in the destination market have been standardized.

• The seller has a customs clearance partner, importer of record, or suitable legal entity in the importing country.

• Profit margins and the accounting system are sufficient to control fluctuations in freight rates, taxes, exchange rates, and return costs.

5.2. Cases where caution is needed with DDP shipping

DDP should not be chosen only to simplify the checkout process. Risks may arise when the seller is not eligible to act as the importer, calculates taxes incorrectly, or does not make provisions for storage and returned goods costs. The Business.gov.uk guide to choosing Incoterms clearly states that the seller under DDP terms must bear the costs and risks of bringing the goods to the agreed location, while also completing import customs clearance. For the European market (EU), read more of Sliner’s analysis of unexpected taxes and charges on ecommerce parcels entering the EU.

Before applying DDP shipping in a new market, businesses should answer three questions:

• Who can act as the importer, and does the business need to register for tax or appoint a tax representative in the destination market?

• Have the Harmonized System classification code (HS code), customs value, origin, freight charges, and taxes been checked in the selling price?

• Who handles detained, returned, or damaged goods; does the accounting system track the total cost to the delivery point for each order?

6. DDP needs to be managed from pricing to accounting

Properly understanding what DDP is helps businesses fully identify their responsibilities before committing to a selling price. DDP makes the total payment price transparent to the buyer but transfers almost all delivery costs, taxes, and risks to the seller; this term only creates an advantage when the business accurately calculates the total cost to the delivery point and complies with regulations in the destination market.

Sliner supports businesses in reviewing tax obligations and selecting an appropriate structure through its Corporate Tax Structuring and Planning service. At the same time, its Accounting Automation service helps standardize tax data, shipping charges, and additional costs so businesses can track profits by market and order. Contact Sliner to assess the suitability of DDP for your current operating model.