In this article, we’re going to discuss what is “Delivered At Place (DAP)”, including some of the responsibilities of DAP for sellers and buyers. We will also highlight some key advantages and disadvantages of DAP, including the risks, costs and issues associated with DAP.
This article will also provide you with some examples of DAP so you are better informed on its uses as it can demonstrate how DAP can provide buyers with innovative ways to manage their logistics with their sellers. A DAP agreement provides a variety of options and alternatives for buyers and sellers, which are all explored in this article.
We will also shed some light on one of the largest B2B wholesale marketplaces in the world, Alibaba.com – where ecommerce is made possible for sellers around the world, connecting you with new customers and the tools necessary to do business on a global scale.
Let’s first start off by discussing what DAP is.
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What is Delivered At Place (DAP)?
Delivered-at-place (DAP) is an international trade term that refers to a transaction in which a seller agrees to cover all expenses and losses associated with the arriving means of transport of goods to a particular location. Once the shipment has arrived at the named place of destination, the buyer is responsible for paying import duties and all relevant local taxes, including clearing and municipal taxes, under delivered-at-place arrangements.
In 2010, the International Chamber of Commerce (ICC) published its eighth edition of Incoterms – international commercial terms, which included the word “delivered-at-place.”1
The term “delivered-at-place” simply indicates that the seller assumes all risks and costs associated with delivering products to a predetermined location. This implies that the seller is responsible for all aspects of the transaction, including packaging, documentation, export permission, loading fees, and final delivery. The buyer, on the other hand, bears the responsibility and obligation for unloading and clearing the items for import.
A delivered-at-place agreement can be used for any mode of transportation (or a mix of modes) and often specifies the point at which the buyer assumes financial responsibility – for example, “Delivered-at-place, Port of Oakland.”
When it was established in 2010, DAP replaced the term Delivery Duty Unpaid (DDU), and while DDU is still used informally, DAP is now the official word used in international trade.1
The need for a clear understanding of counterparty duties in international contracts, particularly when it comes to who ships what to where, is the driving force behind the ICC and the Incoterms. Contracts can refer to the Incoterms now that the ICC has issued clear definitions, and the signing parties have an agreed understanding of duties. The Incoterms have been modified to eliminate outdated words and simplify usage. One of these simplifications was delivered-at-place, which applies regardless of the mode of transport.
International trade and e-commerce is a great way to expand your sales into global markets.
Sellers & buyers responsibilities of DAP
The buyer and seller can establish an understanding of exactly what each party has committed to do and where liability falls in the case of loss or damage by agreeing to standard sets of trading terms (known as Incoterms) and rules and conditions designed to assist companies when goods are sold and transported, and implementing it into the sales contract.
All Incoterms are founded on the idea that when the seller fulfills the delivery obligation according to the appropriate term, the risk of loss or damage is transferred to the buyer. It’s worth noting that this point may differ from the time at which the seller is liable for paying for the carriage to the buyer.
Let’s explore the sellers’ and buyer’s responsibilities under a DAP agreement.
Responsibilities of the Seller:
- Export packaging: process of preparing cargo for export.
- Loading charges: Any costs related with loading the cargo onto the truck at the seller’s warehouse.
- Delivery to Port/Place: The trucking or delivery expenses connected with transporting the cargo to the port or export destination.
- Customs Clearance, Export Duty & Taxes: All fees and responsibilities related to the cargo’s export.
- Origin Terminal Handling Charges (OTHC): The seller is accountable for these charges, also known as OTHC.
- Loading: The seller is responsible for any costs associated with loading the cargo onto the carriage.
- Freight Charges: The price of shipping the goods to the buyer’s location.
- Destination Terminal Handling Charges (DTHC): The seller is responsible for all of these charges.
- Delivery to Destination: When the cargo arrives at the buyer’s destination port, the seller is responsible for the final journey to transport the load to its final destination.2
Responsibilities of the Buyer:
- Unloading at Destination: Any costs connected with unloading the cargo once it arrives by truck at its final destination, which is generally a warehouse, are the responsibility of the buyer.
- Import Duty, Taxes, and Customs Clearance: All importation fees related with the cargo are the responsibility of the buyer. If a customs inspection is necessary, the buyer is liable for the costs of the inspection.2
Advantages & disadvantages of DAP
One of the main advantages of DAP is that it explicitly defines the parties’ responsibilities in the event of unexpected costs incurred during the shipping procedure. According to this Incoterm, the buyer is responsible for any risks and losses after the goods are delivered to him. Any additional costs incurred during the shipping procedure, on the other hand, are the responsibility of the seller.3
Even with the clear guidelines for DAP agreements, there are sometimes instances that result in conflicts, such as when the goods carrier is charged demurrage – a fee for failing to unload on time – as a result of not having sufficient clearance from one of the parties. In these circumstances, the fault normally rests with whoever failed to provide timely documentation, but establishing who was at fault can be difficult because documentation standards are set by the national and municipal authorities in charge of ports and vary from country to country. Even with the benefit of well established contract rules, international trade law can be complicated.
Let’s look at the advantages and disadvantages of DAP in more detail, for both the buyer and seller.
When exporting under DAP Incoterms, the buyer has a substantial benefit in knowing who is accountable for any additional costs incurred throughout the shipping process. According to the International Commerce Center (ICC), after the products have been made accessible to them, the buyer is responsible for all risks and losses associated with the cargo. The cargo would usually be made accessible to them at the buyer’s warehouse. The seller is responsible for any additional charges incurred during the shipment procedure.
DAP offers a low liability option and a broad agreement for buyers who desire to shift all shipping risk on the seller due to this reduced buyer risk.
DAP can assist buyers with cash flow and inventory management, particularly for pricey commodities that require regular restocking from sellers. Buyers can negotiate DAP Incoterms with sellers, in which the seller handles the shipment and the buyer only pays when the goods arrives at their destination. When items are reordered often or particular quantities are required, a seller can transport them to a bonded warehouse near the buyer’s location. The shipment would be sent from the local bonded warehouse whenever the buyer was ready to reorder.
This is quite advantageous to the buyer. It enables users to place smaller orders and have them fulfilled more quickly, rather than waiting for freight to come from the seller’s origin.
While the buyer’s obligations to settle all import duties, local taxes, and customs clearance are clearly stated in this Incoterm, DAP might cause delays in practice. Customs clearance occurs before the cargo arrives at the customer’s selected destination in the vast majority of situations, which implies customs must allow the shipment to pass before it is delivered to the buyer. These charges will be incurred by the buyer in the event of delays, dunnage, or detention.3
Like all Incoterms where the seller both bears the risk and responsibility to ship the cargo, the overall cost will be significantly higher than if a buyer were to rely on their 3rd party logistics or freight forwarder.
There are obvious downsides for the seller, and DAP can be a risk for certain sellers, particularly when sending to new buyers under these conditions. Because one of the most serious risks a seller confronts is that the buyer may refuse to pay import charges, the seller runs the risk of losing their shipment. Sellers are fully aware of these dangers and will take steps to mitigate these issues, such as increasing deposits or charging greater costs, in order to make the shipping procedure viable.
Examples of DAP
One of the most important features of the DAP agreement is that it provides a variety of alternatives that might benefit both the buyer and the seller. As a result, whenever a seller agrees to the terms, DAP is worth considering.
If your sellers are prepared to investigate the choices, DAP can be a realistic option for more experienced importers seeking for a way to boost cash flow.
Let’s look at some examples where a buyer and seller may use a DAP agreement:
- If the stated site is the buyer’s warehouse, DAP might indicate that the buyer only has to pay for the cargo after the products reach their location. In this case, the buyer would pay for their goods on the day they are delivered, rather than tying up capital in inventory while being shipped.
- The seller may offer to transport extra goods to a nearby warehouse, generally a bonded warehouse, where the consumer could purchase the products at any time. The import taxes and unloading expenses would be the only costs the buyer would have to pay.
- If the client is acquiring items from different countries, DAP can come up with a unique approach to save freight costs. If items were to be purchased in China and sent to the United States and Canada, for example, the cargo may be combined into a single container and sent to a port near each country, such as Seattle, Washington. The buyer would ask the named place to be a bonded warehouse. When the cargo arrives, it will be deconsolidated, with part of the container being imported into the US and the rest being transshipped to Canada.2
While this is a one-of-a-kind circumstance, it demonstrates how DAP can provide buyers with innovative ways to manage their logistics with their sellers.