Group D (DAP, DPU, DDP) and things that you may not know

This group consits of four conditions as follows:

 

·  DAP (“Delivered At Place”)

·  DPU (“Delivered at Place Unloaded”)

·  DDP (“Delivered Duty Paid”)

 

1. Rules of Group D (DAP, DPU, DDP)[1] 

 

The letter “D” comes from the word “Delivered”, showing that a seller fulfills its obligations when the goods are “Delivered” to a buyer at the specified destination.

2. “Arrival” Contract

 

The contract under the conditions of Group D is referred to as an “Arrival contract”, in which the seller is required to deliver the goods at the destination. Therefore, the seller is subject to the risk and costs associated with the goods until they are delivered to the buyer at the specified destination. In this way, if the goods are lost or damaged after being sent but before reaching the designated destination, the seller will be considered as not having fulfilled the contract obligation. The seller will be required to replace the quantity of lost or damaged goods or be subject to penalties or compensation as per the agreement, unless the seller is exempted according to the force majeure clause in the purchase contract.

 

DPU is the new rule in Incoterms 2020, replacing DAT in Incoterms 2010. DPU can be regarded as a combination of DAT (delivery at terminal) and DAP (delivery at any place), or it can be simply understood as:

 

- DAT extending the delivery location beyond the terminal point (e.g., the buyer’s premises); or

 

- DAP adding the seller's unloading obligation.

 

Therefore, in Incoterms® 2010, DAT is presented before DAP, but in Incoterms® 2020, DPU (replacing DAT) is presented after DAP because the seller's obligation under DPU is higher than that of DAP.

 

3. Distinguishing the rules of Group D

 

According to Group D, the obligation of the seller is to transport to the destination, but the three rules of Group D are differentiated according to the following table:

 

The seller’s obligation	Unloading at the destination	Import customs clearance	Overall seller’s obligations
DAP			CIP + Risk
DPU	X		DAP + Unloading
DDP		X	DAP + Import

 

Based on the table above, in order to choose which rule belonging to Group D, two factors need to be considered:

 

+ the obligation to unload at the destination.

 

+ the obligation of import customs clearance

 

4. The contrast between Group D and Group F

 

DAP, delivering at the buyer’s premises, is considered to be in contrast to FCA, delivering at the seller's premises, whereas DPU, delivering at the point of destination, is seen as opposed to FCA, delivering at the terminal point. Thus, in the first case, the seller under DAP delivers at the buyer’s premises while the goods are still on the seller’s transport vehicle, whereas the FCA seller delivers at the seller's premises when the goods are loaded onto the transport vehicle designated by the buyer for receipt. In the second case, the DPU seller delivers at the terminal point after the goods have been unloaded from the transport vehicle that brought them to the destination, while the FCA seller delivers at the terminal point when the goods have not yet been loaded onto the transport vehicle designated by the buyer for receipt.

 

DPU, delivering at the destination port (or DAT and DEQ), can be seen as a mirror image of FAS. In this case, the DPU seller delivers the goods after they have been unloaded from the vessel on the wharf at the destination port, while the FAS seller delivers the goods on the wharf or barge, not yet loaded at the loading port.

 

DAP (or DES), when delivered at the port of destination, can be viewed as a mirror image of FOB. This is because, in this case, the goods are delivered on board the ship at the destination port by the DAP or DES seller, while the goods are delivered on board the ship at the specified loading port by the FOB seller.

 

DDP can be regarded as a counterpart to EXW, with the additional obligation for the goods to be loaded onto the transport vehicle for receipt by the seller. Accordingly, the goods, when delivered by the DDP seller, are cleared for import on the means of transport at the destination, whereas the EXW seller, responsible for loading (at the seller’s risk and expense), must deliver goods not cleared for export on the means of transport designated by the buyer for receiving the goods.

 

5. The tendency to use group D

 

In the global market, competition between suppliers has been increasing rapidly, so suppliers tend to increase their obligation on transportation and insurance to increase competitiveness.

 

If the seller’s product faces competition in the buyer’s country, higher obligations may need to be imposed by the seller compared to its competitors. These obligations encompass the provision of forwarding, transportation, insurance, and storage services, in addition to installation services, training, warranty, maintenance, and similar services. Discomfort may be experienced by the seller when control over the goods is limited by delivering them at a point prior to the buyer’s product usage, particularly for perishable items. For instance, a car manufacturer remarked, “Even though the risk of car damage is not borne by me under FOB contracts, I do not feel secure when I observe damage resulting from improper loading into the cargo hold of a ship”.[2] Naturally, every seller aspires to build and maintain relationships with familiar customers. To achieve this, every possible service must be provided by the seller to create the maximum benefit for the buyer.

 

Furthermore, an advantage in negotiating freight rates and insurance fees can be gained by sellers who are large export firms with regular shipments to various locations, as compared to buyers, if the responsibility for arranging all transportation, shipping, and insurance for delivery at the destination is assumed by them.

 

On the contrary, buyers recently have the tendency to request for quotations based on “delivery terms”. Selling goods in a highly competitive market under terms from group D or at very least, under group C, is found to be more appealing to the buyers than selling under terms from group E or F.

 

6. Unloading at destination

 

LCL delivery

 

For consolidation containers (LCL) intended for delivery to multiple consignees, the most appropriate rule is DPU since it is the only rule that assigns responsibility for unloading the goods to the seller. This is because in cases where a container has multiple consignees, the cargo needs to be split by the forwarder for delivery to different consignees. Furthermore, if the goods necessitate special handling upon delivery, the DPU rule will be chosen by the seller who assumes that obligation.

 

Unloading fees at the destination

 

The inclusion of unloading fees in the shipping fee depends on the transportation contract signed by the seller with the carrier. Whether or not unloading fees are covered by the freight is determined by the choice of DAP, DDP, or DPU. The appropriate choice of rules regarding the inclusion of unloading fees should be carefully considered by the parties.

 

If the transportation contract specifies that the freight includes unloading fees, DPU is the suitable choice. However, if the freight does not cover unloading fees, DAP or DDP should be considered. Alternatively, the parties can use any of the group D rules, but it is essential to clearly define the unloading fee in the contract to prevent conflicts with Incoterms provisions.

 

In maritime or waterway transportation, if goods are intended to be transported by the seller along liner routes or under a charter party (C/P) agreement signed under liner terms or unloading fees under liner out conditions, in such instances, the unloading fees are already included in the freight charges, for which the seller is responsible. Therefore, the use of DPU is considered more suitable than DAP or DDP.

 

Conversely, if the seller plans to arrange the carriage of goods through a charter party (C/P) under FO, FIO, or FIOST terms, the carrier is exempted from unloading goods at the destination port, so the buyer must bear the unloading charges. In such a case, the selection of DAP or DDP is considered more appropriate than DPU.

 

Unloading Fees	Transportation	Use of Commercial Conditions
Included in Freight Charges	Merchant vessel   Liner Term/Liner Out Shipping Contract	DPU   DAP/DDP + the seller bears unloading charges (unloading charges for the seller's account)
Not included in Freight Charges	FO/ FIO/ FIOST Shipping Contract	DAP/DDP   DPU + the buyer bears unloading charges (unloading charges for the buyer’s account)

 

However, it should be noted that when altering such conditions, a change in the point of risk transfer will occur. Therefore, if a change in the point of risk transfer is not desired by the parties, the commercial conditions should remain unchanged, but a provision in the contract regarding which party will incur the unloading costs should be included.

 

When goods are delivered to a domestic location other than a customs clearance gate, such as a border, port, or airport, additional costs like domestic transportation fees, loading and unloading, THC, etc., are often incurred by the seller. The seller can agree with the buyer to share these costs, or the buyer may assume all the costs by stipulating “buyer pays 50% of domestic shipping costs” or “THC is to be borne by the buyer”.

 

7. Specified destination

 

In Group D, the seller is obligated to ensure the delivery of the goods to the buyer at the designated place of destination. Thus, when entering into a transport contract with the carrier, it is imperative for the seller to establish a time frame within which the carrier must complete the delivery to the destination. If the contract of carriage fails to specify such a time frame, the carrier is exempt from the responsibility of delivering the goods within that timeframe, as long as the delivery is completed within a reasonable period and with the requisite diligence on the part of the carrier.

 

Additionally, the risk of loss or damage to the goods during transportation to the delivery destination falls upon the Group D sellers. Therefore, the buyer must exercise diligence in inspecting the goods for both quantity and quality upon arrival at the destination, in accordance with the specific provisions outlined in the contract.

 

Group D rules are linked to the designated destination. This destination can be any location where goods are consolidated, including border gates, arrival ports, arrival airports, or even the buyer’s facility.

 

Destination at the border

 

If the destination is a border gate, the use of DAP (or DAF Incoterms 2000) rules is considered appropriate by traders. In essence, contracts under D conditions are contracts for delivery at the place of destination, and the delivery point should, in any case, be within the buyer’s country or, at least at the border shared between the seller’s country and the buyer’s country if the two countries share a common border. When the seller's and buyer’s countries do not share a border, the destination should be the location at the border between the two transit countries or between the transit country and the buyer’s country, rather than the border between the buyer’s country and the transit country. This is because, under the latter scenario, the goods would be considered as delivered at the point of origin in the seller's country, making the use of FCA more appropriate.

 

Where Destination is the port of arrival or inland destination

 

In the case of raw materials, goods are typically delivered to the buyer at the ship or on the wharf. At that time, the designated destination is the port of arrival. The manner in which goods are received at these points (e.g., via pumps, silos, branch lines, warehouses, etc.) is contingent on the type of goods and the conditions at the port of arrival.

 

Finished goods are seldom delivered at the port of arrival and are more commonly supplied to an inland location within the buyer’s country. In such instances, it is important to specify, under Group D conditions, that the destination is the location where the goods are gathered or the buyer’s company facility. By designating an inland destination, the seller can also enhance their competitiveness in providing a steady supply of goods.

 

Where the specified destination is not the final destination

 

In instances where the designated destination does not serve as the final destination, the seller may be requested by the buyer to engage in a carriage contract, at the buyer’s expense and risk, for the onward carriage of the goods to the ultimate destination (e.g., the buyer’s premises) following the immediate transportation of the goods to the named delivery point (e.g., the port of destination). Nevertheless, the option for the seller to decline the carriage contract is retained, provided that prompt notification is given to the buyer. Thus, if the buyer intends to request the seller to execute such a transportation contract, it is imperative for the buyer to distinctly specify the seller’s obligation to notify in the event of the seller’s refusal to assist the buyer.

 

If the seller agrees to assist the buyer with everything necessary to transport the goods to the final destination, the seller will obtain transport documents (such as railway waybills, road waybills, etc.) from the carrier, covering the entire transportation process to the final destination. In these cases, the seller has provided “additional” services at the buyer’s risk and expense, similar to the case of Group E. However, the buyer still assumes the risks and expenses that occur after the goods have been delivered to the specified destination, as specified in the Group D conditions.

 

The specified destination is situated beyond the import clearance point in DAP and DPU

 

According to the regulations of DAP and DPU, the responsibility for import clearance falls upon the buyer. In cases where the designated destination lies beyond the import customs clearance point, and the goods have not yet undergone the import clearance process, this may result in issues for the seller when the transportation arranged by the seller becomes congested at the import customs checkpoint, while the seller remains obligated to deliver the goods to the agreed-upon destination. To circumvent this challenge, the option of choosing DDP instead of DAP and DPU should be chosen. Alternatively, if DAP and DPU are still preferred, the seller must take measures to allocate the risk of the goods to the buyer in accordance with the provisions outlined in section B3a) in the DAP and DPU rules.

 

8. Penalty for unloading and time of arrival (ETA) in DAP and DDP

 

In accordance with DAP and DDP rules, the buyer has responsibility to perform the unloading of the goods; hence, punctual unloading at the destination is of utmost importance. If the goods are not timely unloaded from the means of transport and cleared from the discharge location, a late unloading penalty will need to be paid by the seller, as stipulated in the carriage contract. The seller is then entitled to seek reimbursement of this penalty from the buyer. Moreover, the buyer may have to pay additional storage and container storage fees to freight forwarding companies.

 

To encourage and ensure prompt unloading of goods, the level of unloading penalty should be specified in the sales contract by the seller. In case of swift unloading, the buyer will receive a time-saving bonus, whereas slow unloading will result in a penalty for the extended duration. Additionally, the transportation contract should align with the sales contract, detailing the timing or speed of unloading and the corresponding penalties, as per the seller's specifications.

 

The buyer must be informed about the expected arrival time (ETA) of the transport vehicle carrying the goods, enabling them to arrange for timely unloading. As a result, it is necessary for the buyer to include in the sales contract the seller's obligation to notify the buyer of the estimated time of arrival of the means of transport.

 

9. Risks during domestic transportation

 

The journey of the goods encompasses the international transportation phase to the point of collection at the customs clearance gate (port, airport, railway station, etc.) in the buyer’s country and the subsequent domestic transfer phase from there to the ultimate inland destination. When it is observed by the seller that the risks during the domestic transportation phase are significant and challenging to manage, a modification can be made to change the designated domestic destination to the customs clearance port in the buyer’s country. This is especially applicable for oversized goods, which encounter numerous obstacles during domestic transportation. In situations where the seller deems it infeasible to arrange domestic transportation within the buyer’s country, the use of Group D terms with a destination location specified is recommended to mitigate risks associated with domestic transportation.

 

10. The goods are not received by the buyer

 

Normally, the buyer is assisted in promptly receiving the goods by both the carrier and the seller, who send notifications to the buyer or the buyer’s agent regarding the timing and means of transport to the delivery location. If the goods are not promptly taken delivery of by the buyer, the seller, who has entered into a carriage contract with the carrier, becomes liable to reimburse the carrier for any costs incurred due to the delay in taking delivery of the goods (such as warehousing fees for consignees). However, in the relationship between the seller and the buyer, these additional costs must be covered by the buyer in accordance with the cost allocation regulations of Incoterms.[3]

 

11. Import customs clearance

 

Only the DDP rule necessitates import customs clearance and payment of all import-related taxes and fees by the seller. The DDP term should not be used by the seller if the ability to directly or indirectly perform the required import procedures and the willingness to cover any import-related taxes and fees are lacking. In such circumstances, the DAP or DPU condition should be considered.

 

Prior to considering the sale under DDP terms, it should be researched by the seller whether there exist regulations in the buyer’s country that restrict import customs clearance by foreign parties (non-resident parties). In the event that such regulations are in place, the involvement of a forwarder or customs broker in the buyer’s country may be necessitated to carry out the import customs clearance procedures and circumvent these obstacles.

 

Furthermore, information regarding taxes and duties associated with imports in the buyer’s country should be researched by the seller. It should be noted that VAT rates can vary significantly for different goods in different countries. In certain countries, VAT can amount to as much as 80% of the imported goods’ value. Additionally, there are countries that regulate that taxes and fees linked to imports must be settled within the country (by the resident party), with the possibility of deductions from expenses or incentives provided when other taxes are paid.

 

In such situations, the specific taxes or costs from which the DDP seller is exempt should be explicitly stipulated in the sales contract. For instance, this can be achieved by including the phrase “DDP VAT unpaid” in the contract).[4]

 

It is important to note that the “fees” that the DDP seller is required to pay pertain solely to those that are essential for the import process and, as such, must be paid in compliance with the relevant import regulations. These “fees” do not encompass any additional charges related to storage or services offered by other import-related suppliers.

 

In the absence of any other contractual provisions, the responsibility for conducting import customs clearance procedures and covering taxes and import-related fees falls to the party tasked with import customs clearance. Nevertheless, based on the mutual agreement of the parties, import responsibilities and expenses can be separated in the contract through supplementary clauses.

 

Regulations in the contract	Import procedures	Import costs
DDP not cleared for import[5]	Buyer	Seller
DAP/DPU cleared for import[6]	Seller	Buyer

 

The seller carries out import customs clearance under DPU and delivers to the wharf.

 

In Incoterms 1990, as well as in the previous Incoterms versions, it is stipulated that the DEQ seller (Incoterms® 2010 is DAT, and Incoterms® 2020 is DPU) is obligated to carry out the import customs clearance, considering the delivery of the goods at the wharf at the destination port as equivalent to delivering the goods in the buyer’s country (the ship’s rail establishing an imaginary border with the buyer’s country). Since Incoterms 2000, DEQ has undergone a change, shifting the responsibility for clearing import customs to the buyer. Therefore, if the parties still desire the seller to be responsible for import customs clearance before delivering the goods at the wharf of the destination port, they can use the term DEQ, but it would be necessary to refer to Incoterms 1990 or use DAT or DPU with supplementary provisions for import customs clearance by the seller.

 

12. Seller protects himself through force majeure

 

Under Group D rules, the highest obligation is held by the seller, as all risks and costs of delivering the goods in the buyer’s country must be borne by the seller. Given that the place of delivery is beyond the control of the seller, it is advisable that in the contract, it be stipulated that unforeseen and irreparable risks that may occur before delivery are to be considered as force majeure events. For instance, piracy, war, strikes, and even government import bans (if selling DDP). In the absence of such provisions, the seller is still bound by the obligation to provide replacement goods for those lost or damaged, or to compensate the buyer for damages resulting from late delivery or failure to deliver goods in accordance with the contract's provisions.

 

Conclusion on Group D

 

- The Group D rules should be used by the seller, if possible, to gain an advantage over competitors.

 

- When selecting a rule within Group D, parties should consider the obligations for unloading and import customs clearance.

 

- DPU should not be used by the seller if it is found that the contracted carrier lacks the capability to arrange for unloading.

 

- DDP should not be used by the seller if difficulties in import customs clearance are encountered.

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