Navigating international shipping without Incoterms® is a lot like traveling across country without a map.
Fortunately, Incoterms® exist to guide buyers and sellers to a destination where goods are seamlessly shipped from Point A to Point B.
There are 11 Incoterms® to choose from, with Delivery at Place (DAP) being among the most popular.
DAP is favored among Incoterms® because it can be easily used for air, sea, road, and rail shipments. It also provides clear guidelines for sellers and buyers, and it adapts well to different trade scenarios.
Embark on a thorough exploration of DAP, learning about its benefits, the obligations of all involved parties, and the recommended approaches for successful implementation.
DAP Incoterms® Defined
In a Delivery at Place (DAP) agreement, the seller agrees to pay all costs and suffer any potential losses of moving goods to a specific location. Upon arrival at the specified destination, the buyer pays all import duties and taxes.
DAP replaced the previous Incoterms® Delivered at Terminal (DAT). The International Chamber of Commerce (ICC) changed the name in Incoterms® 2020 because the word terminal in DAT caused confusion.
Although similar, DAP and DAT differ primarily in the transfer point of goods from seller to buyer.
In a DAT transaction, the buyer pays import duties, taxes, and unloads the products from the transport vehicle. The seller arranges and covers transportation costs and assumes all risks until goods are unloaded at the terminal.
With DAP, sellers takes on all risks and costs of delivering cargo to a specified location, including packaging, documentation, export approval, loading charges, and delivery. After that, the buyer takes care of Customs clearance and unloads goods from the transport vehicle.
DAP is a widely used Incoterms® because it adapts well to different transportation modes and trade situations, and clearly outlines the responsibilities of both buyers and sellers.
This Incoterms® shifts shipping risks from buyers to sellers, reducing stress for buyers. It helps buyers manage cash flow and inventory effectively. Because sellers handle shipping, buyers can focus on planning their inventory without worrying about shipping costs.
DAP also offers flexibility and customization with all transportation methods, allowing sellers and buyers to customize shipping terms based on specific requirements, such as the type of goods or logistic needs.
Key Features of DAP Incoterms®
It is essential to be aware of the buyer's and seller's responsibilities to effectively incorporate DAP into a contract.
The seller bears most responsibilities when shipping under DAP contracts. Sellers must:
- Handle packaging, marking, commercial invoicing, and export paperwork.
- Secure necessary licenses and handle Customs issues.
- Take care of precarriage, loading, main carriage, and delivery to the destination.
- Cover shipping costs and any potential losses during transit.
- Furnish the buyer with a Proof of Delivery document.
Although the seller assumes the lion’s share of responsibilities, the buyer must:
- Pay the seller for goods
- Notify the seller about the intended delivery location.
- Resolve import-related concerns and supply import paperwork when the shipment reaches its destination.
- Make arrangements for unloading cargo from the shipping vessel.
- Pay import duties, taxes and levies once goods arrive.
- Arrange and cover transportation costs to move goods to their intended destination, which may be a warehouse, storage facility, or retail location.
How DAP Incoterms® Compare to Other Incoterms®
Importers and exporters may be unsure of when DAP makes more sense than other Incoterms® such as Delivered Duty Paid (DDP), Carriage Paid To (CPT), and ExWorks (EXW). Deciding between these Incoterms® requires an understanding of the key differences and similarities between them.
For instance, DAP and DDP may seem similar, but there are some key differences.
With DDP, most responsibilities fall upon the seller, who pays all shipping expenses through delivery at the destination port. The seller is also responsible for import taxes, Customs clearance, transportation, and related expenses. Once the seller clears goods with Customs and pays transportation costs, the buyer assumes responsibility for the cargo.
DAP reduces the seller’s responsibilities. The seller assumes responsibility for goods until they reach an agreed-upon destination. After that, they are the buyer's responsibility. Once goods are unloaded, the buyer handles Customs clearance and pays Customs duties and taxes.
CPT is an Incoterms® where the seller delivers goods at their expense to a carrier or party nominated by the seller. Here, the seller assumes all risks, including loss, until goods are with the nominated party. When multiple carriers are involved, risks and costs transfer to the buyer upon delivery to the first carrier.
DAP and CPT are very similar. However, with DAP sellers assumes the risks and costs of delivering cargo to a specified location versus the option of a Nominated Party. But in both cases, the buyer takes care of Customs clearance for import and unloads the products from the transport vehicle.
DAP and EXW also have some key differences to be aware of before selecting one over the other.
The first is delivery. Under DAP terms, delivery happens in the buyer's country, while under EXW terms, it happens in the seller's country. Delivery in EXW happens at the seller's Named Place before pre-carriage, whereas in DAP, it occurs at the buyer's Named Place in their country.
Responsibilities also shift. The buyer is responsible for pre-carriage, main carriage, export clearance, and on-carriage to the Named Place under EXW. The seller assumes these responsibilities under DAP.
Practical Applications of DAP Incoterms®
When certain conditions are met in shipping, DAP becomes an ideal Incoterms® for trade stakeholders.
Let’s examine two scenarios where DAP might make sense.
- Freight costs are a concern. DAP offers a creative solution for importers to reduce their freight costs. For example, if a buyer purchases products in Japan and ships them to Mexico, in a DAP agreement, the seller would cover most transportation costs, reducing the time and money a buyer must spend on importing goods.
- Moving multiple shipments. When a buyer purchases multiple shipments from the same seller, DAP might work well. With DAP, the buyer only needs to pay for cargo once it arrives at its destination. Because the buyer only pays for goods when they arrive, their money isn’t tied up in inventory during shipping.
There are a few best practices to follow when selecting DAP as an Incoterms®.
- Be Specific. Avoid vague delivery locations by providing a building name and specific address. For example, ABC Company at Richmond Place, Anytown, USA.
- Address Payment. Avoid issues with payment by making sure the chosen Incoterms® aligns with contract specs and payment requirements. DAP may not work well with Letters of Credit, which can lead to payment security issues.
- Understand Customs Duties. Import customs under DAP are the buyer's responsibility. Failing to fulfill these duties can result in shipping delays.
- Get Professional Advice. Consult logistics and tax experts to understand how using DAP might affect operations.
Leveraging DAP Incoterms® with A.N. Deringer
DAP is a popular Incoterms® choice because it works well for air, sea, road, and rail shipments. It provides clear guidelines for sellers and buyers and can easily adapt to different trade scenarios.
When DAP is used, the seller agrees to pay all costs and suffer any potential losses of moving goods to a specific location. Upon arrival at the specified destination, the buyer pays import duties and taxes in DAP agreements.
Though DAP can provide a buyer with significant benefits, it’s important to recognize the right situations for using this Incoterms® and to apply it correctly. Using any Incoterm® incorrectly can lead to disputes between importers and exporters and costly shipping delays.
A.N. Deringer can help importers and exporters weight whether DAP is right for them. A.D. Deringer has expertise in comprehensive trade services, including Incoterm® selection.
Explore A.N. Deringer’s Services Page for a comprehensive list of the ways the company can help with Customs Brokerage, Logistics Solutions, Warehousing & Distribution, Incoterms® selection and more.
Collaborate with A.N. Deringer for a roadmap and critical support in navigating DAP Incoterms® and other trade challenges.
