DAP Shipping: Simplified Guide for International Sales
- Understanding Delivered at Place (DAP) Incoterm
- Delivered at Place (DAP) – Responsibilities and Operations
- Mechanics of Delivered at Place (DAP) Incoterm
- The Uses of Delivered at Place in International Trade
- Responsibilities for Exporters and Importers under Delivered at Place (DAP)
- Streamlining eCommerce Exports with Shiprocket X
In 1936, the International Chamber of Commerce (ICC) issued a set of rules known as International Commercial Terms (Incoterms) to make the international trade process easy. These terms are globally recognized. There are a few obligations that importers and exporters must follow while conducting international trade. Incoterms help clarify those duties for sellers and buyers and prevent confusion in foreign trade contracts. Delivered Duty Paid (DDP), Delivery at Terminal (DAT), and Ex Works (EXW) are some known examples of Incoterms.
The ICC updates these Incoterms periodically to ensure they match the changing trade policies and practices. This article will help you gain deep insight into the many aspects of DAP shipping for improvised international selling.
Understanding Delivered at Place (DAP) Incoterm
Importers and exporters often encounter complications while trading their eCommerce shipments. The difficulties may arise due to them needing to be in a different country. International shipping involves many formalities, costs, and customs at each process step. Hence, the trade contract has predefined rules regarding the responsibilities and roles of buyers and sellers. These sets of rules are called Incoterms. Among these various Incoterms like Delivered Duty Paid (DDP) and Delivery at Terminal (DAT), one is ‘Delivered At Place’ or DAP agreement.
Exporters need to ship products from one location to another as defined in the trade contract. However, there are various costs involved in the international shipping process, like charges for unloading, packaging, and the risk of losses. Delivered at Place (DAP) means the exporter is willing to take responsibility for these costs. Importers also contribute to the DAP shipping process, but the role of the importer begins only after the shipment reaches the specified location.
Delivered at Place (DAP) – Responsibilities and Operations
To resolve issues in customs clearance while exporting and importing goods and to decide whether or not the seller will bear all the charges in the shipping process, we have the DAP agreement. It does more than that and involves various operations, with buyers and sellers having different responsibilities at their end.
Here are some of the common operations of the Delivered at Place (DAP) shipping Incoterm:
- Clearing Custom Documentation:
So here comes the role of sellers, where they have to provide necessary documents relating to commercial invoices, packing lists, bills of lading, and transport papers. These documents are an important part of the process, and sellers must clear them in time. They need to fill out and submit various custom forms and also provide the buyer’s receipt of goods.
- Bridging the Communication Gap
The DAP shipping agreement makes sure there is no communication gap between the buyer and seller making the deal. DAP is like an effective channel of communication for conveying varying needs and details like fixing the agreed-upon place of delivery for the shipments, timing of the shipments, and any other relevant specifications. The unrestricted flow of clear distinctions and terms makes communication very effective between buyers and sellers.
- Sealing the deal with Insurance:
This one is an optional feature and depends on the buyer. The seller is not obligated to give insurance of goods to the buyer. It’s for the importer to opt for insurance coverage to get protection against any loss or damage on the way. Generally, it’s advisable for the buyers to take the insurance as a precautionary step or safety measure for their own good.
- Going for Pre-shipment Inspection:
There is the hack that saves the buyer from addressing any potential issues they may face early on. It’s a pre-shipment inspection that will help the buyer do that. Hence, it’s only fair for the importer to arrange a pre-shipment inspection before the goods leave the seller’s land.
- Deciding on the Responsibility of Charges:
All the importers and exporters have to face additional charges in the import-export process. These could be the dunnage, detention, or storage fees that arise from unforeseen risks involved. Therefore, the DAP agreement helps both sides communicate beforehand on who will bear the additional charges.
Mechanics of Delivered at Place (DAP) Incoterm
As per the DAP shipping terms, the exporter is liable for the shipment till the designated port. Hence, the seller’s responsibility begins from the place of origin. It starts with inland transport, from the storage facility to the initial port in the exporter’s country. Further, it extends to the carriage proceedings and logistics from the first port to the agreed-upon port in the importer’s country. The exporter is responsible for anything related to custom clearance charges, other related costs, packaging, export approval, documentation, loading charges, and delivery till the agreed-upon destination.
However, the importer is accountable for unloading the goods from the shipping container at the destination country’s port named in the trade contract. Furthermore, the inland transit of products from the nominated port to the final destination or the warehouse is also the buyer’s responsibility. The importer pays any import duty, local taxes, and any other clearance charges involved.
The Uses of Delivered at Place in International Trade
DAP has many common uses for the buyer and seller involved in the contract. One of the major applications of DAP is that you can use it for any mode of transportation. It is versatile for sending shipments by sea, air, road, or rail. Therefore, both parties can choose the most cost-effective and efficient means of transport, depending on their needs and situation.
Since DAP adapts to any mode of transportation, it is well-suited for intermodal shipments. Intermodal shipment is when buyers and sellers transfer goods between different modes during their transit. For example, moving goods from sea to road or air to rail.
DAP is also very useful in transporting fragile items across international borders. It gives the seller more control over the process of handling the shipping of delicate goods. This helps sellers fufill their duty of having the goods reach their buyers in perfect condition.
Moreover, DAP shipping helps in situations where the market conditions of the buyer are uncertain or challenging. For instance, the buyer may not have the proper infrastructure or resources to manage the shipping process. A seller with a DAP agreement can take full responsibility for transportation and delivery to the specified destination in such tricky situations.
Responsibilities for Exporters and Importers under Delivered at Place (DAP)
The exporters and importers are responsible for many things at every step in the DAP shipping process. They must follow specific regulations and take responsibility for fulfilling the obligations of the DAP shipping contract. There are many duties for both the parties partaking in the agreement:
Exporter’s Responsibilities in the DAP Shipping Process
- Handling Various Expenses:
There are several costs, like freight costs, handling charges, and export duties, involved in the DAP shipping process. Under this agreement, the exporters are supposed to bear these costs and the risk of any potential losses along the way.
- Obtaining Custom Licenses
The exporter must take care of the customs issues and secure the relevant licenses required for shipping the products.
- Preparing Documents
The exporter needs to prepare the necessary documents required to ship products overseas. These generally include packaging, commercial invoicing, and any relevant markings for the export of the shipment.
- Managing Logistics
As an exporter, the seller needs to manage and monitor the transportation of goods till they safely reach the destination specified in the trade contract.
- Providing Delivery Proof
The seller needs to provide proof of delivery of goods to the importer after the shipment arrives at the agreed-upon destination.
Importer’s Responsibilities in DAP Shipping
- Import Filing
Importers must look after the formalities involved in export as soon as the goods reach the destination decided in the trade contract. They need to fill out import forms, if any are required.
- Managing Unloading
The importer is responsible for unloading the shipments from the shipment vessel safely and arranging any resources required for the same.
- Handling Transport
The final stop could be a retail store, storage facility, or warehouse. Transferring the goods to the final location after they reach the agreed-upon destination is the importer’s responsibility. The importer needs to ensure all logistics are in place and the goods reach their destination in good condition.
- Payment to Exporter
The importer needs to pay the exporter for the goods and ensure a timely payment.
- Handling Charges
When the goods reach the destination specified in the trade contract, the importer must handle all costs involved in import duties and levies.
Pros and Cons of Choosing Delivered at Place (DAP)
Taking the DAP Shipping route can potentially have certain advantages and disadvantages for exporters and importers. Let’s find out what they are:
- Saves Costs
In DAP shipping, both the parties, the exporter and importer only pay the relevant expenses once they reach the destination decided in the trade agreement. So, this method proves cost-effective for both sides, as they don’t have to bear the costs beyond a specific location.
- Reliable Contract
The exporter is responsible for managing the DAP shipping process and its related costs. This makes the contract reliable and trustworthy.
- Transparency in Contract
There is a lot of transparency and clarity in the DAP shipping contract as to who handles what. The exporter is responsible for the export port customs, whereas the importer takes care of the import customs. This method releases the burden from both parties, as they don’t rely on each other to resolve local customs issues.
- Disparity in Profits
The exporter bears a higher risk in the DAP shipping process. Therefore, the importer may have lower profit margins in this shipment process.
- Requirement of High-quality Service
Exporters need to ensure the quality of the service because poor service may land products in bad condition or damaged. Therefore, they are responsible for hiring an efficient and reliable freight forwarder.
- Limited Control for Importers
Although the buyer and seller both have control of the DAP shipping process, exporters have more control. Exporters have control from the beginning of the shipping process, whereas the importers only get to take over after the goods reach the agreed-upon destination.
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Growing towards a trend where every step needs to be transparent and verified has encouraged the International Chamber of Commerce (ICC) to come up with International Commercial Terms (Incoterms) for international selling. These terms lay the ground for every buyer and seller who wants to import and export goods. Many rules, regulations, and obligations fall under these Incoterms. The DAP incoterm covers the ones where sellers agree to take responsibility for bearing the charges and risks ingrained in the export-import process. They pay the export duties, freight charges, and customs costs, and even handle the customs clearance paperwork, obtain licenses for reporting goods, and do all other formalities relating to the DAP shipping process. While DAP is more about exporters managing things, importers also do their share by managing import customs once the shipment reaches them at their specified location. They also materialize the final step in the process, which entails landing goods at the warehouse or final spot. DAP agreement makes the process easy and clarifies the terms between the buyer and seller to let them have a fair business deal.
DDP and DAP are only slightly different from each other. They may be virtually similar, but the difference lies in the responsibilities of buyers and sellers to pay various charges in the shipping process. In DDP, the seller/exporter pays all import duty, taxes, and customs clearance charges. However, Under DAP, the buyer/importer pays the import duty, taxes, and customs clearance fees.
As per the DAP shipping agreement, the exporter is responsible for paying all charges related to freight. The importer only manages costs to import the goods and unload the shipment as it reaches the location specified in the trade contract.
Sellers usually have their mind set on specific Incoterms that suit their business the best unless a buyer specifically requests for another one. Buyers may often have special preferences. They convey these to the seller. By communicating such preferences, both parties can come to an agreement on the most suitable Incoterm for their trade.