For brands interested in shipping internationally, it’s important to understand that not all shipping methods are alike. While your package will get from A to B, there can be a huge variation in exactly how this happens – and who is responsible for the cost.
Delivery Duty Unpaid (DDU) and Delivered Duty Paid (DDP) are two international commercial terms (incoterms) that sellers will encounter a lot when they start looking into cross-border commerce. Each has its own mix of pros and cons when it comes to the international shipping process, so it’s important to have an in-depth understanding of how they can help – or hurt- your business.
In this blog, we’re going to cover the difference between DDP and DDU, and what you need to consider to make the best decision for you and your customers.
What is Delivery Duty Unpaid (DDU) shipping?
Delivery Duty Unpaid, also referred to as Delivered at Place (DAP), refers to a shipment where the receiving customer is responsible for paying for all necessary taxes, duties, and customs fees required for customs clearance into the destination country.
Once the shipment arrives, the buyer is informed of customs charges according to its declared value and also of any documentation required. This must be paid for by the customer upfront before they can take legal possession of their order.
Seller obligations under DDU shipping
Under DDU terms, the seller pays for all the services required for an order to reach the destination country. This includes inventory receiving, storage, order fulfillment, labor, insurance, and shipping charges. As the entity selling internationally, the seller must supply all of the documentation required to export goods, and for the customer to obtain authorization for import clearance once they arrive.
If something happens to the shipment during the shipping process, such as damage and/or loss of items, it’s the seller’s responsibility to fix the situation and assume any costs incurred. But once the package arrives at the specified location, any additional costs become the responsibility of the buyer.
Buyer obligations under DDU shipping
The buyer’s obligations after Delivery Duty Unpaid begin as soon as the DDU shipment arrives in the agreed-upon location. Depending on the parcel carrier used and whether the method is tracked, notification will most likely be provided by customs.
As the person responsible for importing the products, the buyer pays for all tax charges and customs duty, as well as providing the documentation required by the country for customs clearance. They must either appear in person to take procession of the goods, or pay for additional shipping to send them to a residential address or their own warehouse.
What is Delivery Duty Paid (DDP) shipping?
Delivery Duty Paid shipping is when the seller is responsible for paying for all duties and taxes or the import/export of the goods, rather than the customer. With any DDP shipment, the seller is also the party responsible for transporting the order to the location indicated by the customer. Put simply, if the merchant has decided to charge sales tax and fees in addition to international shipping at the checkout, it’s on them to ensure that cross-border commerce goes smoothly.
Seller obligations under DDP shipping
In addition to providing the goods, sellers must either collect enough money at the point of sale to cover the cost of customs duty or foot the cost themselves. It’s their responsibility to ensure they have checked all the right boxes to obtain customs clearance and avoid parcels from being held up. Only once the goods are in the procession of the buyer do the seller’s obligations cease.
Buyer obligations under DDP shipping
The customer must deliver payment of the goods to the seller, either in full at the time of purchase or according to a payment plan agreed by the seller. It’s also the buyer’s responsibility to make sure they’re providing the merchant with comprehensive delivery instructions for where the goods need to be sent and to retrieve them once they arrive.
What are the key differences between the DDU and DDP shipping process?
Let’s do a quick recap of the differences between Delivery Duty Unpaid (DDU) and Delivery Duty Paid (DDP):
- DDP means that all duties and taxes are the responsibility of the seller, while under DDU they are the responsibility of the buyer.
- Risk is transferred to the buyer once a DDU shipment reaches the destination country, while the seller retains risk until the shipment arrives at its final destination.
- Buyers under DDU must manage documentation and licensing for import clearance, while under DDP shipping, the seller is responsible for all import/export management.
Why is it important for merchants to understand DDU and DDP shipments?
While selling internationally opens up far more sales opportunities for your business, global commerce is a complex area that requires a sound understanding of customs duties and the import process – for every single country you plan on shipping to.
In sum, the decision of whether to use DDP or DDU shipments has a huge impact on how much your business has to manage when selling goods to an international customer.
In every scenario, one party has to take responsibility for duties and taxes, as well as other costs and licenses related to import clearance. The question is: Should it be you, or your customer?
Whichever method you decide on, it’s your responsibility to understand your obligations as the seller and any potential difficulties you need to be aware of. Both DDP and DDU have their own mix of pros and cons that you need to be aware of when involved with international shipping:
Advantages of DDU shipping
For sellers, the appeal of DDU is pretty obvious. Not having to configure your checkout to calculate the right tax charges removes a lot of hassle from running an online store. This also gives buyers a lot more control over their shipping experience, which can be valuable if they are regular importers and have a good understanding of customs clearance in their home country.
Another benefit of DUU is that it results in a lower price at the checkout, According to Baymard Institute, extra costs such as shipping charges, taxes, and fees are the number one reason for cart abandonment in e-commerce. Given how price-sensitive consumers are, this can help you to gain an edge over competitors.
Drawbacks of DDU shipping
The most obvious disadvantage of DDU shipping for customers is that they are at the mercy of any duties and taxes that may pop up on arrival. Nobody likes surprise fees – especially if the merchant hasn’t been fully transparent during the shopping process. Because DDU shipments cannot pre-clear customs, there may be a considerable delay before the buyer receives notification that their package is available for pick-up.
Any merchant using Delivery Duty Unpaid shipping needs to take be aware that they’re likely to attract a lot of customer complaints – no matter how openly they disclose that the buyer is responsible for duties and taxes. Because DDU is no longer the norm in e-commerce, online shoppers simply won’t be expecting surprise fees.
Advantages of DDP shipping
The best thing about DDP for customers is that they only have to pay for their order and wait for it to arrive – everything that happens in between, including the import/export process, is the responsibility of the seller.
This convenience and overall higher standards of service create a more positive customer experience for the buyer, which in turn promotes higher levels of trust and customer loyalty. Because the seller is in charge of choosing parcel carriers and what shipping options are available, this also creates much more consistent experiences where recurring customers know what to expect.
Drawbacks of DDP shipping
DDP puts a lot of pressure on sellers to understand customs regulations in different countries and how much sales tax they need to charge. Moreover, they also have to assume all risks involved with sending and delivering orders, from lost shipments to damaged items.
DDP also means that the buyer doesn’t always have a say over how fast their order will arrive, what parcel carrier is used, or whether shipment tracking is provided. This can be very anxiety-inducing for some customers – especially if their merchant’s post-purchase communication is poor.
Which is better: DDU or DDP shipments?
As a seller, it’s easy to look at Delivered Duty Unpaid (DDU) and see it as the easier, hands-off option for your business. However, DDU shipping doesn’t absolve you completely of understanding what taxes and duties apply to an order.
Even if your customer is responsible for paying for customs duties, it’s still your responsibility as the seller to alert them to what charges are involved and what they can expect.
For this reason, DDU works best in situations where your buyers are importing a large number of items for resale or their use. DDU shipping gives your customers much more control over the import process and where their goods are sent to. This helps brands export to a wider range of countries without needing to understand their custom systems in-depth.
However, it’s important to consider that DDU has become less common for regular e-commerce orders. When customers hop on a D2C e-commerce site, they certainly won’t anticipate any surprise duties waiting for them when their order arrives. If this happens, it will generally result in poor customer experiences – and a lot of complaints to your customer service team. This is why many third-party marketplaces – including Amazon – only accept Delivery Duty Paid (DDP) shipments through their website.
In sum, DDP means more responsibility, but fewer headaches with unhappy customers or damage to your brand’s reputation. Given the expectations for seamless e-commerce, anything other than DDP is likely to be poorly received. If you’re selling to customers, rather than resellers or business owners, DDU is probably not the best option for you.
No matter whether you’re using DDU or DDP shipments, you must understand what your obligations are as a merchant and what your customers are responsible for. Both DDP and DDU have advantages and disadvantages, depending on your business model and who your target customer is.