What does DAP mean in shipping terms?
DAP is an Incoterm that means “Delivered at Place,” where the seller will be responsible for all costs and risks associated with delivering their goods to a final agreed upon location. DAP works well whether it’s sea freight or air shipments; buyers only need importing rights as well as unloading access rights once they’ve been imported into the buyer’s country.
The buyer needs to understand that DAP does not mean there will be no additional charges outside the product cost. The only other fees they may face are freight insurance, import taxes and customs brokerage; these can all impact your bottom line, so you need to know what kind or quantity is being imported before making any decisions about purchasing items online.
What are the Buyers and Sellers Responsibilities with DAP Agreements?
Let’s explore the buyer’s and sellers’ responsibilities under a DAP agreement.
- Export Packaging: Preparing the cargo so it can be exported.
- Loading Charges: Any costs associated with loading the cargo onto the truck at the seller’s warehouse.
- Delivery to Port/Place: The trucking or delivery fees related to transporting the cargo to port or place of export.
- Export Duty, Taxes & Customs Clearance: All costs and responsibilities associated with exporting the cargo.
- Origin Terminal Handling Charges: Also known as OTHC, the seller is responsible for these charges.
- Loading on Carriage: The seller must cover all costs to load the cargo onto the carriage.
- Freight Charges: The shipping cost to transport the shipment to the buyer’s destination.
- Destination Terminal Handling Charges: Also known as DTHC, the seller is responsible for these charges.
- Delivery to Destination: Once the cargo arrives at the buyer’s destination port, the seller is responsible for the final journey to truck the load to the final destination.
- Unloading at Destination: The buyer is responsible for any costs associated with unloading the cargo once it arrives via truck to their final destination, usually a warehouse.
- Import Duty, Taxes & Customs Clearance: The buyer is responsible for all importation costs associated with the shipment. If a customs examination is required, the buyer is responsible for the exam’s costs.
Advantages and Disadvantages for the Buyer
The buyer has a significant advantage when shipping under DAP Incoterms because they are responsible for paying any additional expenses during the process. The International Commerce Center (ICC) indicates that once goods have been made available to them, it’s up to the buyer – as long as there isn’t an agreement between both parties otherwise stating who is ultimately accountable should anything go wrong with buyer cargo while being shipped.
Due to this decreased buyer’s risk, DAP offers a minimal liability option and a widespread agreement for buyers wishing to place all shipping risk on the seller.
DAP is an excellent tool for buyers to help manage cash flow and inventory, especially with expensive items that require routine reordering from sellers. When adequately negotiated by your company, you can negotiate DAP Incoterms where the seller fulfils shipping while only paying once it arrives at their destination. The seller can save time and money when shipping products by ordering them through a bonded warehouse. The goods will be shipped directly from the local branch, reducing cost because they don’t have to go back across the country before being delivered.
This has a massive benefit for the buyer. It allows them to order lower quantities and have them fulfilled more efficiently instead of waiting for the cargo to arrive from the seller’s origin.
DAP can lead to delays, but in most cases, customs clearance happens before the cargo arrives at a buyer’s designated destination, which means they will have to pay for any additional costs incurred due to their shipment being held up by foreign authorities.
There are some risks for the seller when shipping under these conditions to new buyers. They may refuse payment of import duties, leading to them losing their cargo. Sellers mitigate this with higher deposits or additional fees so that they’ll still be able to make a profit despite having less risk involved in doing business internationally.
When to use the DAP Agreement?
One of the most significant aspects of the DAP agreement is that it offers many options that can be hugely beneficial to both the buyer and seller. Because of this, anytime a seller is open to the agreement, it is an Incoterm that is work considering.
DAP can be an excellent option for new importers looking to minimize their obligations, but they’ll need the financial resources and experience necessary. If you’re an inexperienced trader, though, there’s no harm in taking out coverage under Incoterms FOB or Incoterms CIF terms as well; make sure that any rates offered by this plan are comparable with what Incoterms would otherwise provide, so it doesn’t leave your business exposed without knowing exactly where things stand ahead of time.
DAP might be viable for more experienced importers looking for a solution to increase cash flow if your sellers are willing to consider the options. Some scenarios a buyer and seller could negotiate a DAP agreement are the following:
- The buyer could enjoy lower costs when they buy from a supplier that offers DAP. This means the cargo will only be paid for once it arrives at your warehouse, which is especially useful if you’re buying large amounts of products. In this example, thousands upon thousands of units are waiting to come into inventory.
- The seller could agree to ship more product inventory, usually at a bonded warehouse near the customer. Once there is enough for an order, they can sell it all together without any other costs besides import fees and unloading charges from customs.
- DAP can offer a creative solution to minimize the freight charges. For example, if products were bought from China and sent out as one container with shipments going into Canada or the United States separately once they arrive at their destination port of call – say Seattle, for instance, this would significantly reduce costs because now you’re only paying two sets rather than three! And since its bonded warehouse status has been granted by customs officials beforehand, there shouldn’t be any issue getting these goods across borders, either way, so all we’ll need to do is finalize our purchase before shipping them off.
The buyer and seller must agree on a destination point before sending any cargo. Both parties must know what they are getting themselves into, so it’s best if you can arrange for a pre-shipment inspection beforehand. Buyers and sellers should also communicate which party is responsible for any dunnage, detention, or storage fees arising from unforeseen risks during the exporting and importing process.
What is the difference between DAP and DDP?
The two are virtually identical, apart from which party pays to import the cargo. Under DDP – all import duties, taxes & customs clearance requirements are the seller’s responsibility. Under DAP – all import duties, taxes & customs clearance are the buyer’s responsibility.
How can I get help to manage my shipping terms?
Incoterms® 2020 is only a tiny part of the international shipping process. If you want to focus on your business more and outsource the international shipping matters, AnsarComp (M) Sdn Bhd is the right company to help you with this. Ansarcomp (M) Sdn Bhd can act as the legal importer and exporter of goods without having ownership over them. While being technically responsible as the importer and exporter, Ansarcomp (M) Sdn Bhd’s job scope for Importer of Record (IOR) and Exporter of Record (EOR) service for our clients involves liaison such as courier services and forwarding agent companies for both shipment clearance and the client’s delivery. We are responsible for obtaining import permits and labels from SIRIM wherever necessary. We are offering our clients trade compliance solutions. Manufacturers, distributors and agents are our most regular clients who find the IOR and EOR concepts are helping them in managing their products into Malaysia without hassle. And as for us, DDP Incoterms are the most preferred international commercial terms to be chosen with its cost inclusivity borne by the seller. If you want to know more about our trade compliance and logistic solutions, particularly for goods coming into Malaysia, please click here to contact us.
Where can I learn more about shipping incoterms?
Check out our: Know your Incoterms.