For many small and medium-sized enterprises (SMEs) starting to export, the DDP Incoterm (Delivered Duty Paid) Incoterm may seem the simplest and most attractive option: the seller takes care of everything and the buyer receives the goods without complications. However, in practice, this “convenience” can become a major risk if all the costs and formalities involved are not well managed.
What is the DDP Incoterm?
The term DDP, which stands for Delivered Duty Paid, refers to a condition of sale in which the seller is responsible for the entire logistics process until final delivery to the buyer. This includes not only international transport, but also export and import formalities, payment of duties and compliance with any customs requirements in the destination country.
This formula shifts all responsibility for the shipment to the seller, from the initial packaging until the goods arrive at the point agreed with the customer. The buyer only has to receive the cargo, without handling documents, taxes or permits.
Why do SMEs make the mistake of choosing DDP?
- Lack of knowledge about local regulations
Many sellers underestimate the complexity of import clearance. Each country has specific requirements: tax regulations, mandatory registrations, special licenses, and more. Taking on DDP without local expertise can lead to delays, unknown procedures or non-compliance
- Hidden costs and lack of visibility
When taking on DDP, the seller must anticipate and pay duties, VAT, customs fees, inspections, additional taxes… All of that makes the final price more expensive. Moreover, without granular transparency, these costs can be overlooked and significantly affect the profit margin.
- Lack of local logistics expertise
Managing a DDP shipment involves contracting customs brokers and carriers in the buyer’s country. If the seller does not have reliable partnerships there, there is a risk of using inefficient suppliers resulting in delays or high cost overruns.
- Risks and insurance
Although the seller assumes full responsibility for any damage or loss of the goods until they are delivered to the buyer at destination, not enough attention is always paid to taking out adequate insurance. This can result in significant financial losses if unforeseen events occur during transit or in the customs process, especially in international shipments where several logistics players are involved.
Alternatives to DDP Incoterm
One of the most commonly used options for those who want to avoid the risks of DDP is the DAP (Delivered at Place) Incoterm. Under this term, the seller is responsible for delivering the goods to the destination country, but it is the buyer who assumes the import formalities and the payment of duties or local taxes.
This alternative offers a balance: the seller retains some control over the logistics operation, but reduces his legal and tax exposure in the receiving country. For many SMEs, it can be a more practical and secure solution
Good practices before accepting DDP
- Find out about the tax and customs regulations of the destination country.
Each market imposes its own requirements: licenses, specific tariffs, prior declarations… Knowing them will avoid surprises.
- Confirm the availability of customs agents or logistics partners at destination.
Reliable partners who are familiar with local legislation are key to avoiding delays and costly mistakes.
- Clearly detail costs in your quotations.
If you decide to offer DDP, specify each item so that the customer understands what he is paying for and you have control over the margin.
- Consider relying on a local importer.
In some cases, having an intermediary handle destination clearance can simplify the entire process and reduce tax costs.
- Evaluate alternative Incoterms if you do not have international experience or structure.
If you do not have the means to assume the entire operation, opting for formulas such as DAP may be more viable.
Conclusion
The DDP Incoterm may seem a convenient solution for the buyer, but for many SMEs it represents a source of logistical, legal and economic risks that are not always taken into account. A thorough understanding of the implications of each international sales and purchase term is key to making the right decisions and protecting the company’s interests.
If you are considering international shipments and do not know which Incoterm best suits your operations, INTPS can help you analyze your needs and find the most efficient and secure logistics solution for your business.
