Lesson 10 DAP DDP part 3

Summary

In this lesson of 'Really Understanding Incoterms 2020,' Bob Ronai dives into the similarities and differences between DAP (Delivered at Place) and DDP (Delivered Duty Paid). He explores key elements like notices (A10 and B10), insurance responsibilities (A5 and B5), export and import clearance (A7, B7), and how these terms affect Letter of Credit (LC) processes. Ronai explains the challenges and potential risks of using DAP and DDP, particularly with VAT/GST and customs laws. With over five decades of experience, his aim is to clarify these complex rules for better trade practices.

Takeaways

• 😀 The course focuses on understanding Incoterms 2020, with Bob Ronai providing insights based on his extensive experience in international trade.
• 😀 The lesson continues with an exploration of the similarities and differences between DAP (Delivered at Place) and DDP (Delivered Duty Paid) Incoterms.
• 😀 Bob emphasizes that the contents of the course are based on his experience, not legal advice, and he was a member of the drafting group for Incoterms 2020.
• 😀 A10 and B10 require the seller to inform the buyer about the delivery of goods, while the buyer must provide notice about the delivery time and location.
• 😀 Insurance requirements for both seller and buyer are explained, with the seller being advised to arrange insurance to cover the risk of goods damage or loss during transit.
• 😀 DAP rules state that the seller is responsible for export and transit clearance, but the buyer must handle import clearance and other formalities in the country of import.
• 😀 DDP rules make the seller responsible for all export, transit, and import clearance formalities, including obtaining necessary licenses and pre-shipment inspections.
• 😀 DDP can be problematic in many countries due to restrictions on who can act as an importer and complications with VAT and GST recovery.
• 😀 Using DAP and DDP with letters of credit (LCs) is not ideal, as LCs typically don't align with these delivery methods, offering no protection for the seller.
• 😀 Both DAP and DDP rules are considered risky and potentially dangerous in certain trade situations, particularly with LCs, airfreight, and FCL/LCL shipments.
• 😀 The lesson ends with a preview of the next lesson, where more complex and confusing aspects of Incoterms 2020, such as the DPU rule and other delivery-related articles, will be discussed.

Q & A

What is the primary purpose of this course on Incoterms 2020?

The primary purpose of the course is to pass on Bob Ronai's knowledge and experience from over five decades in international trade to help others better understand and navigate Incoterms 2020 for a successful future in trade.

What is the difference between DAP and DDP in the context of this lesson?

DAP (Delivered at Place) and DDP (Delivered Duty Paid) are very similar, but the key difference lies in import clearance. For DDP, the seller is responsible for both export and import clearance, while in DAP, the seller handles export and transit clearance, but the buyer is responsible for import clearance.

What is meant by 'A10 and B10 notices' in the context of Incoterms 2020?

A10 and B10 refer to the notification requirements for both the seller and the buyer. The seller must notify the buyer when the goods are delivered or will be delivered to the destination terminal or the buyer's premises. Similarly, the buyer must inform the seller when and where they want the delivery.

Who is responsible for insurance under DAP and DDP?

Neither the seller nor the buyer is obligated to make an insurance contract. However, the seller should arrange insurance for the goods, especially if they do not have a general policy, because the seller bears the risk if the goods are damaged or lost during transit.

What is the buyer's responsibility regarding export and import clearance under DAP?

Under DAP, the buyer is responsible for paying and carrying out the import clearance formalities, including obtaining any necessary documents like import licenses and ensuring the goods meet the country's customs requirements.

Why does Bob Ronai suggest avoiding the use of DAP and DDP with Letters of Credit (LCs)?

DAP and DDP are incompatible with standard Letter of Credit (LC) operations. LCs typically require specific details about shipment, such as the port of discharge and an onboard transport document, but these are issued before delivery at the destination, which creates conflicts with the timing and process of DAP and DDP.

What is the risk for the seller if goods are damaged or lost during transit under DAP?

If goods are damaged or lost during transit under DAP, the seller faces the risk of breaching the contract. Additionally, the seller may not be able to deliver the goods on time, which could result in penalties or loss of business.

What legal issues might arise when using DDP for international transactions?

Using DDP may lead to legal issues due to complex import clearance requirements, such as the need for the buyer to be registered in the importing country. If customs brokers mistakenly clear goods in the buyer's name without approval, penalties could arise, even though the seller is liable for costs.

What is the significance of export, transit, and import clearance in the DDP rule?

Under the DDP rule, the seller is responsible for carrying out and paying for all export, transit, and import clearance formalities in the countries involved, including obtaining necessary licenses, clearances, and other official authorizations. This rule is difficult to apply in many countries due to restrictions on who can act as the importer.

How does the VAT or GST system impact DDP transactions?

In DDP transactions, VAT or GST is often included in the selling price and is non-recoverable by the buyer. This is because the system in many countries only allows registered entities to recover VAT/GST, which can make the seller's price higher and potentially problematic.