International trade is vast and complex, with complex jargon and laws that non-experts may find overwhelming. Therefore, in 1936, the International Chamber of Commerce (ICC) released a set of International Commercial Terms (Incoterms) standards to simplify the process.
The Incoterms define explicit guidelines for buyers' and sellers' responsibilities and obligations in terms of transportation, delivery, insurance, and other areas of commerce.
DAP is one of the 11 incoterms that is frequently used globally.
Understanding DAP is becoming increasingly important as more online buyers purchase from companies beyond their nation’s boundaries. Mastering the nuances of DAP could mean the difference between increasing your worldwide impact and remaining limited to local constraints.
In this blog, we will discuss the DAP shipping term, the major obligations for sellers and buyers, and suitable scenarios for using a DAP agreement.
What is DAP Shipping?
DAP is an incoterm that stands for Delivered at Place. It means that the seller delivers the products to a specific location, but the buyer is responsible for unloading and clearing them through customs. The seller undertakes all the risks and costs of delivering the products to the specified location, including transportation charges, export and import clearance, and delivery to the final destination.
The designated place of destination can be any agreed-upon site, such as a port, an airport, a warehouse, or the buyer's premises. It is vital to highlight that the seller's duties end once the items are delivered to the designated place of destination, and the buyer undertakes all risks and costs thereafter.
To understand DAP completely, you need to know the defined obligations of both the seller and the buyer. Let’s look at a detailed breakdown of the same.
Seller's Obligations in DAP Shipping
Under DAP contracts, the seller is the one who bears the majority of the responsibilities, including:
- Export Packaging: Under DAP, you must ensure the products are suitably wrapped to protect them from damage during transit. This can include waterproofing, cushioning, or specially designed containers for fragile things.
- Loading Charges: Bear any expenditures incurred while loading the cargo onto the truck at your warehouse.
- Coordination of export documentation: Ensure all necessary export documentation for customs clearance, like commercial invoices, packing lists, import/export codes, bills of lading, permits, and licenses, is in place.
- Export Duty, Taxes & Tariffs: Bear all charges associated with exporting the cargo, including taxes, export duties, tariffs, etc.
- Transportation costs: Cover the costs of transporting the goods to the agreed-upon destination. This can include truck charges, freight charges, charges for loading containers on the ship or train, and origin and destination terminal handling charges (OTHC and DTHC).
- Goods Delivery: As per the contract, you are responsible for delivering the goods to the buyer in good condition, at the agreed-upon location, and within the agreed-upon time frame. Any damage or loss before delivery is your responsibility.
- Notification to the Buyer: Notify the buyer as soon as the products are delivered in compliance with the DAP terms.
Buyer's Obligations in DAP Shipping
As a buyer using DAP Incoterms, you're obligated to manage the following:
- Unloading at the specified destination: The buyer is responsible for making arrangements to unload the cargo from the shipping vessel at the designated location.
- Transport: Once unloaded, the buyer is responsible for planning to transport the goods from the agreed-upon delivery site to your final destination, such as a warehouse or store.
- Import Customs and Associated Costs: Handle all import customs formalities in your country, including managing the required documentation and paying import duties, other fees, and taxes.
- Payment of the goods: Pay the price of the goods as agreed in the sales contract.
When to Use a DAP Agreement?
When considering whether DAP is the optimal choice for your logistics process, it is essential to consider the seller's capabilities in your country. DAP can be a good option if the seller has a strong presence and can efficiently handle the complexities of the import process in your country, including customs clearance.
Moreover, there are some instances in which a buyer and seller could negotiate a DAP agreement. Let’s look at them.
- Warehouse Deliveries: If the agreed location is your warehouse, according to DAP, you only need to pay for the cargo on the day it arrives there. This will ensure that you do not lock up capital in inventory while the goods are in transit.
- Multi-Nation Imports: If you’re importing goods across different nations, DAP can provide an innovative solution that could save freight costs. For example, if the goods were purchased in China and supplied to the United States and Canada, the cargo may be combined in a single container and delivered to a port near both countries, such as Seattle or Washington.
You would request that the named port be a bonded warehouse. Once the cargo arrives, it will be deconsolidated, with part of the shipment imported into the United States and the remainder transshipped to Canada.
- Bonded Warehouses for Faster Fulfillment: The seller may agree to transport more inventory to a local bonded warehouse near you, and you could then purchase the products from the seller when you require them. This scenario enables faster deliveries and ensures you only pay import duties when you purchase and not every time there is an incoming shipment.
DAP Shipping vs. Other Incoterms
The choice between DAP and other Incoterms is determined by the preferences, capacities, and risk tolerance of both parties in a trade agreement. In this section, we’ll discover how DAP differs from other popular Incoterms like DDP and CIF.
DAP vs. DDP
DAP vs. CIF
Conclusion
The DAP Incoterm clearly allocates responsibilities and risks between the buyer and seller while also providing flexibility regarding delivery location and mode of conveyance. This makes it an attractive option for businesses dealing with cross-border operations. However, a major drawback of DAP is the fact that you, as a buyer, have less visibility and control over the consignment’s location and condition.
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