The International Chamber of Commerce (ICC) is preparing an update to Incoterms 2010, which is expected to include the elimination of the trade term DDP (Delivery Duty Paid), a move that will impact e-commerce operators across the globe.
What are incoterms?
'Incoterms' stands for 'international commercial terms', a set of internationally recognised standard trading terms published by the ICC to facilitate international trade. They define the responsibilities of, and transfer of risk and liability between, buyers and sellers operating in the sale of goods globally.
Since 1990, there has been a revision of the incoterm rules every 10 years in order to keep in line with developments in international trade. The current version will be replaced by Incoterms 2020, due to be published in September 2019 and enter into force on 1 January 2020.
What is DDP?
Delivery Duty Paid (DDP) is a delivery agreement whereby the seller assumes all of the responsibility, risks and costs associated with transporting the goods to the place of destination. It is a common incoterm used in the sales contracts of e-commerce operators.
The seller's responsibilities include:
- Clearing the goods for both export and import (including applying for any import approvals and licenses);
- Paying any applicable duties and taxes for both export and import; and,
- Carrying out all customs formalities.
Why might DDP be abolished?
Under DDP, sellers must supply goods at their own risk and expense, and are required to comply with legislation in countries where they may have no presence.
The regulatory and commercial difficulties experienced by sellers applying DDP in practice has led the ICC considering abolishing it.
What would replace DDP?
Early indications are that the DDP term may be replaced with two new incoterms in 2020:
- DTP (Delivered at Terminal Paid): when the goods are delivered to a terminal (e.g. a port or airport) in the country of the buyer, and the seller assumes the payment of the customs duties.
- DPP (Delivered at Place Paid): when the goods are delivered anywhere other than to a transport terminal, such as to the buyer's address, and the seller assumes payment of the customs duties.
Impact on e-commerce operators
E-commerce operators usually rely on the services of a third party logistics provider in destination markets to deliver the goods and comply with local regulations.
If the anticipated changes go ahead, e-commerce operators employing a DDP term today will need to update all contracts with such third party providers to incorporate a new incoterm, clearly defining where their risk transfers to the third party and their liability ends.
If you think your business may be affected by this change and you would like help implementing the new incoterms, please get in touch.
9 August 2019
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