The comparation between dap and fob rules for delivery

Index INTRODUCTION I DAT - DELIVERY AT TERMINAL 1, Definition 2, How Delivery at Terminal work? 3, Obligation 4 Benefits of DAT .5 Backdraw of DAT Parties’ responsibility .5 7, Example 10 II DDU- Delivered Duty Unpaid 12 1, Definition 12 How Does DDU Work? 12 Responsibilities Under Delivered Duty Unpaid (DDU) 13 Seller Obligations vs Seller Obligations Under DDU .13 Advantages and Disadvantages of Delivered Duty Unpaid (DDU) 14 III DDP - Delivered Duty Paid .16 Definition 16 How does Delivered Duty Paid work? 16 Obligations 17 Benefits 26 Backdraw 26 Paties’ responsibility 27 7.Difference Between DDU and DDP 27 Example 28 IV DAP - Delivery at Place 29 1, Definition 29 2, How Delivery - at – Place works ? 29 3, Obligations 30 4, Benefits of DAP 32 5, Backdraws of DAP 32 6, Parties' responsibility 33 7, Example 34 V THE COMPARATION BETWEEN DAP AND FOB RULES FOR DELIVERY 35 CONCLUSION 36 REFERENCES 37 INTRODUCTION The International Chamber of Commerce have published new Incoterms 2020 that have come into effect from the 1st of January 2020 The ICC originally published Incoterms® in 1936 and have continually made updates to reflect the changes to the Global Trade environment It’s important that all parties involved in trade clearly understand the changes and how they apply to global supply chains Incoterms play such a vital role in the world of global trade Incoterms 2010 or Incoterms 2020 may seem complicated, but it’s imperative that buyers and sellers clearly understand how they work and their own obligations along the supply chain In this article we explain the updates made and provide simple explanations, along with an Incoterms infographic to explain Incoterms 2020 Incoterms are referred to as International Commercial Terms They are a set of rules published by the International Chamber of Commerce (ICC), which relate to International Commercial Law According to the ICC, Incoterms rules provide internationally accepted definitions and rules of interpretation for most common commercial terms used in contracts for the sale of goods’ All International purchases will be processed on an agreed Incoterm to define which party legally incurs costs and risks Incoterms will be clearly stated on relevant shipping documents DAP,DPU,DDP,DAT is in Incoterms 2020 Group D Incoterms rules have been revised in 2000, 2010, and 2020, to ensure that the trade terms are clearer I DAT - DELIVERY AT TERMINAL 1, Definition Under Incoterms 2020, the rule formerly called Delivered at Terminal (DAT) is now referred to as Delivered at Place Unloaded (DPU) Delivered At Terminal refers to the seller delivering the goods, once unloaded from the arriving means of transport Goods are placed at the disposal of the buyer at the named terminal, at the named port or place of destination DAT is used irrespective of the mode of transport selected and may also be used where more than one mode of transport is utilized The specific point within the terminal at the place of destination should clearly be specified as agreed upon DAT requires the seller to clear goods for export, where applicable, without any obligation to clear the goods for import, pay import duty or carry out import customs formalities 2, How Delivery at Terminal work? The named terminal is usually at the end destination in the buyer’s country It can be a quay, a warehouse, or a container yard In addition, the named terminal can also be designated at a road, rail, or air cargo terminal In DAT, the location where the seller must deliver the goods should be precise Typically, cargo terminals and ports can be large and difficult to navigate Therefore, the seller must know exactly where they are supposed to deliver the goods inside the terminal The seller must unload the goods once the shipment has arrived at the named terminal Under DAT, the seller is responsible for paying for all expenses until the goods are unloaded at the named terminal This means that the seller pays for the export licences, clearance, and duty After the goods have been unloaded, the seller can consider his responsibility complete, and the risk transfer occurs from the seller to the buyer And the buyer is responsible for paying for import customs formalities such as import duties and tax at the destination port The DAT Incoterm was specifically designed to meet airport and port deliveries 3, Obligation Seller’s Obligations o Goods, commercial invoice and documentation o Export packaging and marking o Export licenses and customs formalities o Pre-carriage and delivery o Loading charges o Main carriage o Delivery at named terminal at port or place of destination o Proof of delivery Buyer’s Obligations o Onward carriage o Import formalities and duties o Cost of pre-shipment inspection o Delivery to buyer Benefits of DAT The key advantages of Delivery at Terminal are around convenience and reduced risk to the importer: The supplier delivers goods to the destination place (importer doesn’t need to cover these costs) The risk is transferred from the supplier to the importer once the goods have been dispatched and unloaded at a defined place at the destination The supplier bears the responsibility for most of the carriage/transport of the goods from the origin to the destination Less hassle and organization for the buyer of good Backdraw of DAT The disadvantages of DAT lie with the seller as they have to arrange the entire main carriage They also have to arrange the export customs formalities and unload the goods at the delivery terminal The DAT Incoterm might also be disadvantageous to the buyer as, although the seller arranges the main carriage, the shipment costs are priced into the costs of the goods As a result, the seller has no incentive to keep the cost of the shipment low, and the buyer usually ends up paying higher prices Parties’ responsibility Seller’s Responsibilities Buyer’s Responsibilities Cost Payment terms for the seller include: Costs borne by the buyer include: Warehouse charges: for maintaining goods till they are delivered Custom charges: for import customs Port charges: for port clearing Packaging charges: for marking procedures and labeling goods as per export Inland transit charges: for standards transportation from the port to Inland transportation: for the warehouse loading and transporting goods Warehouse charges: for till the first port maintaining goods after the Deport charges: for port duties delivery of goods by the seller Freight forwarding charges: the freight forwarding agent’s fee for handling logistics Custom charges: for export customs proceedings Documentation charges: for preparing and submitting necessary documents required for the shipping process Delivery terms The seller has responsibilities till the nominated place, which can be a port, but generally tends to be a quay, warehouse, assembly unit etc and this is one of the key differentiating factor from the Under DAT terms, the buyer must accept the proof of documents provided by the seller at the destination port He shall receive the goods DAP 2020 incoterm, so the buyer delivered at the port stays liable for the main freight proceedings The seller's duty stays till the delivery of goods at the first nominated Risk tranfer The risk of goods stays with the seller till the appointed place of port He stays liable for any risk related to damage of goods till they are unloaded at the nominated port The risk of goods transfers to the buyer after the delivery Also, if the buyer fails to instruct the seller in reference to the nominated port, the risk and damage will be borne by him/her Insurance Since the entire freight responsibility rests with the seller, he is liable for insurance coverage till the nominated place of port He'll bear all the insurance charges during the course; in the case of sea/ocean freight, he’ll have to take marine insurance for goods As the carriage duty rests with the seller, insurance is his responsibility The buyer has no obligation to insurance Duty and clearance As the duties transfer at the nominated harbor, the buyer is responsible for import customs and duties He remains liable for all payment charges and risks thereafter This is where the difference between DAT The seller has duties towards export customs proceedings He stays responsible for preparing all necessary documents Payment for port charges and customs clearing procedure, duties, and local charges are borne by him incoterms & DDP shipping incoterms of 2020 are clearly delineated, under DDP, the responsibility of the duties, payments & documentation remain with the seller itself Acquiring all necessary documents provided by the seller at the appointed port and carrying out further import proceedings are a part of his responsibilities 7, Example A Canadian buyer buys automobile spare parts from China and the parts will be transported under ‘DAT’ to a facility at the terminal in Canada In this case, the Chinese clear the spare parts through customs at the China port, and take care of the bills covering the cost of carriage and insurance up until safe delivery in Canada After successful unloading at the Canadian port facility, the responsibility and risks are duly transferred to the Canadian buyer He will see to the completion of the delivery process II DDU- Delivered Duty Unpaid 1, Definition Delivered Duty Unpaid (DDU) is an old international trade term indicating that the seller is responsible for the safe delivery of goods to a named destination, paying all transportation expenses, and assuming all risks during transport How Does DDU Work? Under the terms of DDU, the seller is required to deliver goods to the agreed-upon destination in the country of importation The buyer would then be responsible for the rest of the costs and further delivery of the shipment unless other terms have been laid out ahead of time Responsibilities Under Delivered Duty Unpaid (DDU) According to DDU arrangements, the seller secures licenses and takes care of other formalities involved in exporting a good; it is also responsible for A6 Delivery/tran sport document The seller must provide the buyer, at the seller’s cost, with any document required to enable the buyer to take over the goods B6 The buyer must accept Delivery/tran the document sport provided under A6 document A7 Where applicable, the B7 Export/import seller must carry out Export/impor clearance and pay for all t clearance export/transit/import clearance formalities required by the countries of export, transit and import, such as: - export/transit/import license; - security clearance for export/transit/import; Where applicable, the buyer must assist the seller, at the seller’s request, risk and cost, in obtaining any documents and/or information related to all export/transit/import clearance formalities required by the countries of export/transit/import, such as: - export/transit/import licence; - pre-shipment inspection; and - security clearance for export, transit and import; - any other official authorisation - pre-shipment inspection; and - any other official authorisation A8 The seller must pay B8 The buyer has no 17 Checking/pac the cost of those kaging/marki checking operations ng (such as checking quality, measuring, weighing, counting) that are necessary for the purpose of delivering the goods in accordance with A2 Checking/pac obligation to the kaging/marki seller ng The seller must, at its own cost, package the goods sold unpackaged The seller must package and mark the goods in the manner appropriate for their transport, unless the parties have agreed on specific packaging or marking requirements A9 Allocation The seller must pay: of costs a) all cost relating to the goods and their transport until they have been delivered in accordance with A2, other than those payable by the buyer under B9; b) any charges for B9 The buyer must pay: Allocation of a) all costs relating to costs the goods from the time they have been delivered under A2; b) all costs of unloading necessary to take delivery of the goods from the arriving means of 18 unloading at the place of destination but only if those charges were for the seller’s account under the contract of carriage; transport at the named place of destination, unless such costs were for the seller’s account under the contract of carriage; and c) the cost of providing the delivery/transport document under A6; c) any additional costs incurred by the seller if the buyer fails to fulfill its obligations in accordance with B7 or to give notice in accordance with B10, provided that the goods have been clearly identified as the contract goods d) where applicable, duties, taxes and any other costs related to export, transit and import clearance under A7; and e) the buyer for all costs and charges related to providing assistance in obtaining documents and information in and B7 accordance with B5 A10 Notices The seller must give the buyer any notice required to enable the buyer to receive the goods B10 Notices The buyer must, whenever it is agreed that the buyer is entitled to determine the time within an agreed period and/or 19 the point of taking delivery within the named place of destination, give the seller sufficient notice Benefits - Lower risk, as the seller assumes all responsibilities and charges to the destination However, the risk is not gone! - Landed cost is known at the time of purchase - No administrative supply chain management, arrangement of vendors or payment of such charges Backdraw - No control over the movement or importation of the goods - No direct contacts to track a shipment other than through your vendor - No ability to interject in the event of an issue - Hidden transport and import costs may lie in the markup calculated by the seller Paties’ responsibility Seller’s responsibility - Prepare goods and related documents - Take responsibility for all risks and costs - Deliver goods to an agreed place 20 Buyer’s responsibility - Pay for goods according to the agreed contract - Responsible for the goods when they have been delivered to the agreed place 7.Difference Between DDU and DDP There is often confusion between the incoterms DDU (delivery duty unpaid) and DDP (delivery duty paid) Let’s take a brief look at the differences: In DDP: - The seller bears the majority of the burden – incur the cost of getting the goods all the way to the door of the buyer - The buyer is favoured, taking very little responsibility in the delivery process In DDUcountry - The seller bears the burden of cost and delivery to the destination country, at which point the responsibility is transferred to the buyer - These terms are favourable to both parties since each assumes responsibility in their own Example A buyer in New York enters into a DDP deal with a seller from London to purchase a consignment of goods It means that the seller from London has to pay for the transportation of the goods from their storage to the London port and to the port in New York If the goods are damaged in any way while they are being transported, the seller will have to bear the cost 21 Once the goods have reached the port in New York, the buyer will only have to pay for the unloading of the consignment, while customs duty, import tariffs, and other local taxes will be paid by the seller If the contract mentions the terminal destination as the port in New York, then the seller does not have to pay for additional freight However, if the terminal destination is the buyer’s warehouse, then the seller must pay for it as well Since the seller assumes most of the risk in such contracts, all the costs are reflected in the selling price Therefore, the buyer generally has to pay a higher price for the goods in these deals IV DAP - Delivery at Place 1, Definition Seller delivers the goods to the agreed place at the destination Seller assumes all costs and risks until the goods are ready for unloading at the named place of destination 22 Delivered-at-place (DAP) is an international trade term used to describe a deal in which a seller agrees to pay all costs and suffer any potential losses of moving goods sold to a specific location 2, How Delivery - at – Place works ? Buyers and sellers often face complications when it comes to trade contracts, whether they are in the same country or not As such, there are rules and regulations in place that clearly define the roles and responsibilities of each party in a financial contract These are known as Incoterms—one of which is a delivered-at-place or DAP agreement DAP simply means that the seller takes on all the risks and costs of delivering goods to an agreed-upon location This means they are responsible for anything associated with packaging, documentation, export approval, loading charges, and ultimate delivery The buyer, in turn, takes over the risk and responsibility for unloading the goods and clearing them for import A delivered-at-place or DAP agreement is applicable for any form or combination of forms of transportation It usually lists the point at which the buyer takes on financial responsibilities, such as “delivered-at-place, Port of Oakland.” 3, Obligations The ICC sets out clear obligations for both buyers and sellers for each Incoterm We've listed the key responsibilities for each party below: · Sellers The seller is the one who bears most of the responsibilities when it comes to shipping under DAP contracts This includes: 23 - Documentation: Under DAP rules, the seller must secure any documentation, including tallies of goods in the shipment, commercial invoicing as well as any packaging and marking related to the export of the shipment - Licensing: The seller must secure any licenses needed to export the goods and take care of any customs issues on their end - Transport: This category includes any pre-carriage of goods, the delivery to the port, loading onto the container, and main carriage/delivery to the destination - Costs: The seller must bear the cost of the shipment and must pay for any losses that may result during shipment - Proof of Delivery: This is provided by the seller to the buyer once the container arrives at the destination · Buyers While the seller does bear the brunt of the responsibilities under a DAP contract, there are certain things to which the buyer must adhere These points include: - Payment: The buyer must establish and pay the seller for the goods They must also advise the seller of the destination - Import: Once the shipment arrives at the destination, the buyer must take care of any issues related to import This includes any formalities, such as import forms - Unloading: The buyer must make arrangements to unload the cargo from the shipping vessel - Costs: The buyer bears the cost of import duties, taxes, and levies once the shipment arrives at its destination 24 - Transport: Once unloaded, the buyer is responsible for transporting the goods from the destination/port to their next location This can be a warehouse, storage facility, or retail location Sellers - Inventory, commercial invoicing, and export paperwork Buyers - Payment to seller - Import formalities and paperwork - Export and customs licensing - Unloading cargo - Pre-carriage, loading, maincarriage, and delivery to destination - Import duties, levies, taxes - Cost of shipment and any losses - Transporting to next location - Proof of delivery to buyer 4, Benefits of DAP DAP offers more convenience, as well as minimal liability to the buyer than the seller Thus, it is comparatively more advantageous to the buyer One major advantage of DAP is that it clearly states the responsibility of the parties in case of additional expenses during the shipping process As per this Incoterm, it is the buyer that is responsible for all risks and losses after the delivery of the cargo to him to her On the other hand, the seller bears any additional costs during the shipping process 25 5, Backdraws of DAP Even though DAP clears the rights and responsibilities of the buyer and seller, there are scenarios that may lead to a dispute between the two parties One such scenario is when the carrier incurs demurrage Demurrage is basically the charge for failing to unload the cargo in time And it results primarily due to not getting proper clearance from either buyer or the seller In such a case, the fault is of the party that did not provide the proper and timely clearance However, at times, it could get difficult to determine whose fault it is because of the laws of different countries In such an ambiguous situation, usually, the seller has to bear the cost of demurrage 6, Parties' responsibility In DAP agreements, the buyer is responsible for paying import duties and any applicable taxes, including clearance and local taxes, once the shipment has arrived at the specified destination The phrase was introduced in the International Chamber of Commerce's (ICC) eighth publication of its Incoterms (international commercial terms) in 2010 An Incoterms® rule, applicable to any form or forms of transport (air, ocean, ground, or multimodal), under which the seller is responsible for delivery of the goods, ready for unloading, at the named place of destination (often the buyer’s place of business) The seller generally assumes all risks and pays all charges associated with shipment up to the named place of destination The buyer/consignee takes responsibility for costs and risks when the goods are placed at buyer’s disposal ready for unloading at the named place of destination and is responsible for any import clearance formalities Because of this, the contract of sale should very clearly specify not just the 26 named port/place of destination, but the actual precise point at or within the named port/place of destination where delivery will occur 7, Example For example, a buyer in London enters into a DAP deal with a seller from New York to purchase a consignment of goods It means that the seller from New York has to pay to transport the goods from their storage to the port and from the port to London If the goods are damaged in any way while they are being transported, the seller will have to bear the cost as well Upon the arrival of the goods at the port in London, the buyer must pay for customs duty, import tariffs, and other local taxes If the contract mentions the terminal destination as the port in London, the seller does not have to pay further freight However, if the terminal destination is the buyer’s warehouse, the seller must pay for it as well V THE COMPARATION BETWEEN DAP AND FOB RULES FOR DELIVERY Delivered at Place to a named place (DAP) and Free On Board at named place FOB are the two of eleven delivery rules for movement of goods under Incoterms 2020 The difference between both DAP and FOB delivery terms under Inco terms 27 First of all, FOB rule is meant for movement of goods on waterways, as it is known as Marine restricted mode of transport whereas DAP rule may be used for movement of goods by Air, Sea or Land Secondly, the named place to deliver goods under DAP is in buyer’s side whereas under FOB, the named place to deliver goods is in Seller’s country Under FOB rules, the seller discharges his obligation on costs and risks under movement of goods when goods are gone on board the vessel at seller’s side However under DAP rules, the seller is responsible for movement of goods till the named place mentioned at buyer’s side Another difference between DAP and FOB is; compared to FOB terms, higher risks and costs are involved for a seller under DAP terms, as he is responsible for main carriage and on carriage Under a contract of carriage DAP; since the control over main carriage is with the seller, the buyer depends up on the seller to get export movement data However, under FOB rules, the buyer pays ocean freight and he holds the control over main carriage in turn can obtain vessel movement data from shipping carriers or his agent easily Under FOB terms, since the buyer controls over the ocean freight, the seller does not have responsibility to release Bill of Lading However, the buyer and seller mutually agree and buyer arranges to instruct carrier of goods or his agent to allow seller to release BL and in turn he sends to buyer through his bank, if original BL required by the buyer 28 CONCLUSION The Incoterms included in this group are related to the shipment destination Delivered at Terminal (DAT) According to this Incoterm, the seller delivers and unloads the goods at a pre-determined destination The seller is in charge of the safety of the goods up until he delivers them at the destination port Delivered at Place (DAP) When the seller delivers the 29 products ready for unloading at the specified destination, it is referred to as DAP The seller is fully responsible for the products until they arrive at the specified location Delivered Duty Paid (DDP) This is used when the seller accepts full responsibility for all expenses and risks involved in delivering goods to the buyer’s specified location This includes clearing products for export and import at the customs, paying any necessary duties, and finishing customs paperwork REFERENCES Banton, C (2022) Delivered Duty Paid: What DDP Means for Importers, Exporters 30 CFI Team (2023) Delivered-at-Place (DAP) Compare between DAP and FOB rules for delivery (n.d.) 2022 International chamber of commerce (n.d.) Incoterm 2020 THOMPSON, B (2020) Incoterms® 2020 Explained, how they will affect global trade Trade Finace Global (n.d.) Delivery at Terminal - What is the DAT Incoterm®? 31