What is DAP Shipping?
- The seller agrees to pay all costs associated with the shipment and is liable to pay for any potential losses arising in transit to the final destination. The seller should obtain a contract of carriage that matches the contract of sale, until the agreed delivery point.
- The buyer is responsible for unloading the goods and paying import duties and any applicable taxes. For example: custom duty, import tariffs, and local taxes.
DAP shipping was first introduced as an International Commercial Term (Incoterm) in 2010 by the International Chamber of Commerce (ICC). The ICC is a representative institution made up of 45 million companies that promote and facilitate international trade. ICC occasionally publishes a set of Incoterms that aim at bringing clarity to international business transactions and contracts.
Understanding the Importance of DAP Shipping
DAP shipping agreements usually have clear guidelines, but may sometimes result in disputes, for various reasons. For example, sometimes the carrier of the goods may incur demurrage. This means that they failed to unload the goods on time, possibly from a delay in the receipt of proper clearance from either of the parties to the trade agreement.
In this situation, the party that failed to discharge its duty of providing timely authorization and complete documentation to the goods carrier is at fault and must pay a fee. Determining who is at fault can be complicated, because the documentation requirements and definitions may vary from place to place.
The fee/cost is prescribed by national authorities, and are different in every country. Often, ports within one country may be controlled by various local authorities, making it a complicated situation with unanticipated issues.
People often compare the benefits of delivery duty paid (DDP) shipping vs. DAP shipping. Let’s take a look…
The Comparison: Delivery Duty Paid (DDP) vs DAP Shipping
- Delivery Duty Paid (DDP) shipping is where the seller takes all responsibility for fees and risks of shipping goods, until they are delivered to an agreed place by the buyer and seller.
- DDP shipping gives the buyer security and reduces risk, especially when shipping internationally.
- DAP shipping offers security and protection to both parties, at different stages of the journey.
- The buyer can have confidence knowing that their goods will be delivered from the origin to their delivery location (agreed on by both parties), and will be ready for unloading.
- The seller receives a secure method for international shipping that works for the customer. They’re also then not responsible for any potential issues that may occur around customs clearance, and import taxes and duties.
- Some buyers may prefer that the seller takes most of the responsibility, so that they are not at risk. The sellers need to decide whether they want to handle most of the risk and cost.
DAP Shipping and the Supply Chain
With DAP shipping agreements, it is critical for the seller to track the location of their container, throughout the container voyage. As described above, one wants to avoid situations such as having to pay “demurrage” due to a delay. These situations can be mitigated by having vessel tracking and ETA prediction technology, ensuring greater visibility.