If you're researching how to handle your logistics internationally, you may have come across the terms "DDU" and "DDP" in shipping.
DDP vs. DDU
A DDU term stands for "Delivery Duty Unpaid", while a DDP term stands for "Delivered Duty Paid".
So, what does that actually mean?
Let's take a step back. The country you're shipping to may impose a duty or tax on your shipment, depending on the declared value of what you're shipping.
Every country has its own set of rules, regulations, and taxes for importing. These duties and other charges can be paid by either the sender or the receiver of the shipment.
DDP and DDU, both Incoterms as defined by the International Chamber of Commerce, play key roles in global commerce. Here's a quick look at their definitions, what DDP and DDU shipping include and other critical information.
What Do DDU and DDP Mean in Shipping Terms?
DDU payment Incoterms (or delivery duty unpaid) mean the receiver/customer will get contacted by customs once their shipment arrives, and will have to settle any charges in order for customs to release the shipment and have it delivered to the customer.
DDP payment Incoterms (or delivered duty paid) mean the sender is responsible for paying the duties. In many eCommerce cases, the seller includes these duties at checkout and directly collects payment from the customer for DDP shipping.
What does DDP Incoterms include?
DDP shipping sees the seller pay for any and all of the costs required to bring their product into the destination country of the buyer. These additional costs include any required import duties and taxes, such as a Goods and Services Tax (GST).
Does DDP shipping include VAT?
Yes. Unless specified otherwise by the sender, DDP shipping requires the sender to pay any VAT. Online merchants looking into DDP shipping should always confirm any VAT requirements before selling their items online in order to fully calculate their impact on their shipping costs and profit margin.
Does DDP include customs clearance?
Yes. As with VAT, DDP shipping involves the sender paying for customs clearance. Again, the sender should always conduct thorough research beforehand and take into account the additional cost of custom clearance and its impact on their overall shipping costs and profit.
What is the difference between DDP and LDP?
LDP stands for landed-duty paid and refers to the final price the sender is responsible for when selling their products cross-border, including costs such as customs clearance, shipping insurance and duties. Generally speaking, it's very similar to DDP, though encompasses a wider array of shipping costs such as shipment insurance, for example.
Is it better to do DDU or DDP shipments?
Sending shipments DDU may appear cheaper at checkout as there are no processing fees that are added on top of the duty that needs to be paid.
However, it would be the seller's responsibility to communicate to the customer that duties will apply when the shipment arrives in customs.
It's very common for customers to be unaware that duties even need to be paid. When they receive that call from customs requesting payment, many times it's an unwanted surprise. This can negatively impact your customer experience.
To collect these duties, customs will forward the package to an independent customs broker.
This is where it can get very expensive, as brokerage, storage, and late payment fees may apply. As all brokers are independent and each charge a different fee structure, it’s impossible to tell the customer what their final amount will be.
The reason DDP shipments are a little more expensive upfront is that express couriers will process the payment to customs on your behalf, but for an additional fee.
Still, these fees are fixed and can be 3-4 times cheaper than DDU brokerage fees. Some can also charge "disbursement fees", which is a percentage of the amount of duty they will advance on your behalf.
Paying these additional fees upfront to your courier ensures that your shipment will clear customs and get delivered, and customs wouldn't have to contact your customer directly to collect additional fees.
DDP shipments will also reduce the chances of your customers abandoning the shipment in customs, which would be worse for you as you'll not only lose product and a sale, but you'd have to pay additional fees if you want the shipment to be returned to you.
In our view, DDP is a better option. No one is hit with surprise fees, resulting in a smoother delivery experience.
Tips on implementing DDU or DDP Shipping for Your eCommerce Store
Whether your business decides to ship on DDU terms or DDP terms, it's best to actively communicate what to expect with your customers on your website.
Explain how taxes and duties will be handled:
- On product pages
- At your store checkout
- In email confirmations
- Within your shipping policy
- On your store's FAQ page
In conclusion, DDP is better for retail customers as it makes the delivery process smooth and error-free.
But let’s not disregard DDU from the shipping altogether – import and export companies that work under license and regularly get a large number of shipments actually prefer DDU.
What you end up choosing should depend on the business model you follow and the savviness of your customer.
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