How and when to use the DAP Incoterms (Delivery as Paid)
DAP (Delivery at Place) is one of the most popular Incoterms used in Europe, it is also one of the most popular used for e-commerce. Learn how to use it for international commerce and cross-border e-commerce.
Everything you need to know about DAP and practical examples
TFG spoke to Shipping Expert Johnatas Montezuma, a shipping expert with years of experience on incoterms, who shares his experience and practical work with many Fortune 100 companies
History of Delivery at Place
DAP should be one of the most used terms because of the easy of use by buyer which basically need to arrange destination customs clearance. The International Chamber of Commerce (ICC) eliminated DDU (Delivery Duty Unpaid) from Incoterms 2000 and created DAP and DAT (Delivery at Terminal) with the intention of simplify D terms group. DAP is one of the lesser used terms as shippers prefer the most traditional CFR (Cost and Freight) and CIP (Carrier Insurance paid to).
DAP – what is it?
In DAP, Delivery at Place, the seller is responsible for moving the goods from the origin to their delivery at the place agreed with the buyer ready for unloading at destination. Under DAP terms, the risk passes from seller to buyer from the point of destination mentioned in the contract of delivery. The seller must deliver the goods not unloaded at the place agreed. The seller needs to notify the buyers that goods have arrived. All legal export formalities are covered by the seller at time of exporting the goods. Buyer is responsible for customs clearance, duties and taxes at destination.
DAP in practice
While ICC (International Chamber of Commerce) description might sound easy, there are some practical considerations to be aware of. On the ground, there will be many cases where customs clearance at destination needs to be completed before the actual physical delivery. This means that local customs authorities must provide a green light for moving goods from the destination terminal to the buyer’s premises. In some scenarios, customs processes can be delayed causing extra storage, demurrage and detention.
What could go wrong?
- Goods could arriving at the destination country without complete export/import documentation
- Customs clearance process could be delayed by customs broker
- Buyer could delay on duties and taxes payment
Who is responsible to pay for all the extra expenses?
There is a gray area here. ICC rules state that buyer bears all risk and loss of damage from the time the goods have been made available at the named place of destination within the agreed time. Usually the delivery point is the buyer’s door after customs clearance. Therefore, anything that needs to be paid before the goods arrive at agreed upon the named place of destination has to be paid by the seller.
How to avoid misunderstandings
- Agree on the point of destination as clear as possible and state in the contract of sell
- Agree on delivery timeframe
- Seller should notify the arrival of goods with sufficient time in advance
- Seller must provide all necessary documentation a few days before arrival
- Agree on who will pay for unloading charges (this is sometimes difficult to be arranged by seller)
- Nominate a destination customs broker in advance and agree on a reasonable clearance period
- Agree beforehand who will pay for demurrage, detention and storage in case of any dispute
Some shippers prefer to use CPT (Carrier Paid to) instead of DAP. It is easier to choose CPT that covers carriage of goods until they arrive at the place of destination and delivery happens when goods have been received by the first carrier. This choice will depend on other factors like payment terms, mode of transportation and nature of goods.
When sellers want to ship overseas and have preferred international courier rates, DAT can be used instead of DDP (Delivery Duty Paid). Having preferred courier rates allow shippers to deliver goods at buyer’s destination so they can clear customs and pay duties and taxes if necessary. E-commerce sellers have the advantage of placing goods at destination with competitive rates and let buyers arrange local customs processes.
Scenario: high tech industry
High valued goods traded by large manufacturers under DAT terms. Some high tech manufacturers allow their buyers to receive goods in their warehouses and has a delivery date as starting date for payment. This trade method has considerable advantages for buyers who will pay for duties and taxes when goods are at their shop and have payment credit terms to start at time of delivery. Shipment frequency can increase in batches and cash flow is beneficial to the buyer. Some buyers request shipments to be delivered in small quantities (like pallets) directly to their POS (point-of-sale). I have seen this scenario applied by high tech companies delivering mobile goods directly to shopping malls in Australia.
When correctly applied, DAT is one of the most useful terms in international commerce offering great benefits for buyers and sellers. Both parties should agree who will pay for extra expenses when applicable. With the increase of cross-border commerce, DAT will be more popular over years.